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The game is played with a standard 52-card deck, plus a single joker. It is played on a table marked with seven betting locations if one of the players serves as "bank"; in a casino where players play against the house, there are only six betting spots.

The cards are shuffled, and then dealt to the table in seven face-down piles of seven cards, with four cards unused, regardless of the number of people playing. Each round's deal begins on a randomly-selected position on the table, with the hands after the first being dealt to the player's left around the table. One common way of doing this is to roll three six-sided dice, then count betting spots clockwise from the first until the number on the dice is reached; then give that spot the first hand, the next spot the next hand, and so on until all seven hands have been allotted (this is an adaptation of the similar procedure used in Pai Gow). Otherwise, the position is derived from a random-number generator as shown on a display above the dealing apparatus. If there is no bet placed on a particular spot, the hand is still assigned but then placed in the discards with the four unused cards.

Each player is playing against the banker, who may be the casino dealer or one of the other players.

The object of the game is to create two poker hands out of the seven cards in your hand: A five-card poker hand and a two-card poker hand. The five-card hand must rank higher than your two-card hand. The two-card hand is often called the hand "in front", and the five-card hand is called the hand "behind", as they are placed that way in front of the player when he is done setting them. The only two-card hands are one pair and high cards; no straights, flushes, and so on. The joker plays as a bug: that is, in the five-card hand it can be used to complete a straight or flush, if possible; otherwise it is an ace. In the two-card hand, it always plays as an ace. Five-card hands use standard poker hand rankings, with one exception: in most Nevada casinos, the hand A-2-3-4-5 ranks above a king-high straight, but below the ace-high straight A-K-Q-J-10. In California, this rule doesn't apply.

If each of your now-separated hands beats the banker's corresponding hand, then you win your bet. If only one of your hands beats the banker, then you push. If both of your hands lose to the banker, then you lose. On each individual hand, ties go to the banker (for example, if your five-card hand loses to the banker and your two-card hand ties him, you lose). This gives the banker a small advantage. If you foul your hand, meaning that your low hand outranks your high hand or that there are an incorrect number of cards in each hand, there will be a penalty, either re-arrangement of the hand according to house rules or forfeiture of the hand.

In casino-banked games, the banker is generally required to set their hand in a pre-specified manner called "house way", so the dealer does not have to implement any strategy in order to beat the players. When a player is banking, he is free to set the hand however he chooses. However, the player has the option of "co-banking" with the house, and if this option is chosen, the player's hand must also be set the house way.

California casinos typically charge a flat fee per hand, such as 50 cents or one dollar, to play, win or lose. Other casinos take out of winnings a 5% commission. While this seems high, it should be noted that a hand of Pai Gow poker takes a long time to play compared to, say, blackjack, and there are many pushes, so the house doesn't collect that 5% as often as it would collect the house percentage on other games.

Basic Strategy

Generally speaking, one should try to set the highest two-card hand that you can legally set (that is, the best two-card hand that still leaves a higher five-card hand behind). More specifically, one should expect and "average" hand to be something like a medium-to-high pair behind in the five-card hand and an ace-high in front. Detailed computer analysis has been done to determine ideal strategy, but this requires memorizing large tables. A close approximation can be done with only a few rules of thumb. If you are playing in a casino, you can always ask that your hand be set "house way" if you are in doubt; most house strategies are quite reasonable and can be quite close to optimal strategy.

If you have no pair, no straights, and no flushes, set the second- and third-highest cards in your two-card hand. For example, with K-Q-J-9-7-4-3, play Q-J and K-9-7-4-3. There are a few minor exceptions to this (for example, with A-Q-10-9-5-4-2 it is slightly better to play Q-9 and A-10-5-4-2), but these are rare and don't affect your win rate much.
If you have nothing but a single pair, set it in your five-card hand and put the two highest remaining cards in your two-card hand. For example, with A-Q-Q-9-6-5-3, play A-9 and Q-Q-6-5-3. There are no exceptions to this rule. This rule and the rule above will cover 90% of the hands you play.
Two pair is the most common case where strategy isn't obvious. You can either play the high pair behind and small pair in front, or else two pair behind and high cards in front. The smaller your high pair and higher your remaining cards, the more you should be inclined to play two pair behind. If your side cards are small, or your larger pair is large, split the pairs. You should always split pairs if your high pair is aces, and almost always split if your high pair is kings or queens; they are high enough by themselves. With something like J-J-4-4-A-Q-5 you can consider playing A-Q and J-J-4-4-5-, since A-Q in front is not much worse than 4-4, but two pair behind is much better than a single pair of jacks. Jacks and tens might be more inclined to split, because tens in front is much better than A-Q. With pairs as small as 7s and 8s, you might consider playing two pair behind if you can play a king-high or better in front. With 2s and 3s, you might even play as little as a queen-high in front. If you have no side cards higher than a jack, always split pairs, even 2s and 3s. (Most house ways split if there's a pair of 6s or higher, and split small pairs if there's no Ace for the low hand.)
Three pair is a very good hand. Always play the highest pair in front, no exceptions. For example, with K-K-7-7-4-4-A, play K-K and 7-7-4-4-A.
If you have three of a kind and nothing else, play three of a kind behind and remaining high cards in front, unless they are aces--always split three aces, playing a pair of aces behind and ace-high in front. Occasionally, you can even split three kings if your remaining side cards are not queen-high (for example, with K-K-K-J-9-7-6, it is slightly better to play K-J and K-K-9-7-6 than to play J-9 and K-K-K-7-6). Most house ways only split three Aces.
If you can play a straight or a flush or both, play whichever straight-or-better five-card hand makes the best two-card hand. For example, with K?-9?-8?-7?-6?-5?-4?, playing the flush would put 8-6 in front, playing the 9-high straight would put K-4 up front, but the correct play is K-9 and 8-7-6-5-4. Occasionally, you will have a straight or flush with two pair; in that case, play as if it were two pair and ignore the straight or flush. This rule applies even if you can play a straight flush: if a straight or flush makes a better hand in front, play it that way.
With a full house, generally play trips behind and the pair in front. The exception is if the pair is very small and your side cards are very high, for example, with 5-5-5-3-3-A-Q, it might be better to play A-Q with the full house behind. These are rare, though, and you will never be making a big mistake if you never play a full house behind. House ways will always split the full house.
With two sets of trips, play the higher as a pair in front, and the smaller trips behind. For example, with Q-Q-Q-7-7-7-A, play Q-Q and 7-7-7-A-Q. No exceptions.
With four of a kind, play as if it were two pair, but be slightly less inclined to split. For example, with 10-10-10-10-J-5-4, play 10-10 and 10-10-J-5-4; with 3-3-3-3-K-Q-7, play K-Q and 3-3-3-3-7. Most house ways always split the four of a kind.
With three pair and a straight or flush (only possible with the joker), play as three pair (aces in front).