Like humans and other anthropomorphic animals, Chao are highly social and sapient creatures, have very flexible facial expressions, and possess self-awareness. They also behave closely like human infants, and possess delightful, pleasant, and lively mannerisms. Due to this, they get delighted when their owners pat or embrace them gently, or simply carry them around. Conversely, Chao do not like to be attacked, specially with a Spin Attack-related move, thrown, or punished. They also enjoy fruit, which is their favorite food.

Chao live in certain areas of Sonic's world, known as the Chao Gardens. These gardens are paradise for Chao, and have a nice, clean and shallow pool for them and palm trees with the fruit they eat. Nevertheless, various Chao have demonstrated that they can live in other environments, as long as these have pools of fresh water. The best known case of this is Cheese, who lives with Cream the Rabbit and her family in her house.

When it comes to biology, all Chao are genderless. They also appear to be oviparous creatures, since they are born from special eggs known as Chao Eggs. Chao are capable of reproduction; when they are ready to mate, flowers will bloom around them. If two Chao with flowers encounter each other, they will make a little dance and generate a Chao Egg. Chao can also mate if they are given heart fruits

Chao can also grow into adults, though they do not change much in terms of body size. When one "Chao year" has passed (roughly one to three hours), the Chao will create a cocoon and evolve into a more mature form. Like other living beings, Chao have a life span and will eventually die; however, if their owners take good care of them and befriended them, Chao will begin a process known as reincarnation, where they will either show a pink-colored cocoon and be reborn from an egg as a child. However, if their owners treat them harshly, Chao will show a gray cocoon and then disappear for good.

Chao can also have their own alignment, which varies depending on their owners and the way they are treated. By default, Chao are Neutral Chao, and change to either Hero or Dark Chao, with a gentle or a wimpy personality respectively. Regardless, all three types of Chao behave mostly the same. Looking at it this way, Chao may be like some sort of water mirror that reflects their environment.

Besides the normal evolutions, a special Chao called a "Chaos Chao" can be created. This can be done once the selected Chao has transformed at least two times. During that third or higher cycle of its life, if it is happy enough, given at least one of each animal in the game, and all its stats are around equal, it will become a Chaos Chao. Besides looking different than a normal Chao, the Chaos Chao has an endless lifespan. There are three types of Chaos Chao: "Light Chaos", "Hero Chaos" and "Dark Chaos". To get a Hero Chaos or a Dark Chaos, the player should give them one animal from either the Hero or Dark characters respectively, and that all of their stats are around equal. Along with their apparent invincibility, Chaos Chao lack the ability to reproduce.