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The Palladium System is the house system used in nearly all games from Palladium Books. It has its roots in D&D as played in the late 70s (OD&D plus all supplements or early AD&D First Edition). The one exception to its usage at Palladium is Recon due to the game originally being a non-Palladium property. Games that have used the Palladium System include (but are not limited to) The Mechanoid Invasion and its successors, Palladium Fantasy Roleplaying, Teenage Mutant Ninja Turtles, Robotech, and Rifts.

It is a class and level system with D20 based combat. In addition it has a full blown skill system with classes driving skill availability and level driving skill competency. Experience points are awarded by GM fiat although a suggested list of awards is included. The system also includes alignment with a strict "no neutrals" rule.

Combat diverges from D&D in that armor does affect the ability to be damaged but not to be hit. Unlike similar games that took a different path, however, Palladium does it by creating a zone between being hit and taking damage to the armor instead of armor absorbing damage. As a result Palladium armor wears out over time in ways most armor reduces damage systems do not or, if they do, not as organically in the combat system. Some games also include Mega Damage Capacity (MDC) in addition to normal Structural Damage Capacity (SDC) which is a scaling system where 1 MDC = 100 SDC.

Skills have one or more of three affects. The simplest is a skill raises the value of an attribute or gives a one time bonus. The iconic example of this is boxing which gives extra attacks, strength, parrying, and damage. Nearly all Palladium fighting oriented characters have boxing. The second group is skills that give an accumulating set of bonuses to various actions as you increase in level. Palladium combat and weapon skills are examples of this with bonus attacks, bonuses to hit, and bonuses to damage accumulating as characters gain experience. Finally, the majority of skills are percentage based using a roll under a given percentage to succeed. They have a base change which is modified by attributes and a per level bonus. Given skills can be gained after first level some skills in the later two categories will have their level based portion calculated at a level below character level.

Magic and psychic abilities are both present. In most games all characters have a chance to be psychic along with psychic specific character classes. The system involves selecting psychic powers and using a pool of Inner Strength Points to power them. In more modern Palladium games magic works similarly with spells and Potential Psychic Energy (PPE) points. Early Palladium games had spells per day limitations similar to D&D. The transition from spells per day to PPE occurred in Rifts but has been added to revised editions of older games. It is also generally considered a marker of ramped up power levels in Palladium games.

Finally, characters by class or race gain special abilities. This is particularly important in Nightbane and Teenage Mutant Ninja Turtles (now After the Bomb) where most characters are in a single class and built using random tables or points to select class features.

All Palladium games using the system have a complete version. While most have some unique rules the similarity allow for fairly straight forward conversion with the big stumbling point being the damage system and if a game allows for MDC. The situation is not a universal system a la GURPS or Hero but closer early 80s Chaosium (before the system was generalized as BRP).

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