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The P-1 Grand Prix is a tournament and main setting for Persona 4 Arena. The Investigation Team gathered once again to investigate the true nature of tournament when the Midnight Channel returned, displaying the team as participants. The tournament takes place in a replica of Yasogami High School within the Midnight Channel. At the same moment, the Shadow Operatives also unknowingly join the tournament when they entered a TV after they discovered that Labrys is indeed inside it. Later on, a wandering Elizabeth senses the ruckus caused by both the Investigation Team and the Shadow Operatives in the TV World and decides to investigate the strange phenomenon. Unlike the Shadow Operatives, Elizabeth was never considered to be an official combatant in the tournament.
- If two participants meet, they must fight each other until a victor is declared.
- Neither participant may leave the area (which is blocked off by invisible walls) until the fight is decided.
- Only the victor may leave while the loser must stay.
- All losers must remain in their stage until a champion is crowned.
In order to coax both fighters into fighting each other, an illusion of their opponent will begin taunting them through their own insecurities or urge them by giving them a situation where they have to fight, along with additional taunting from the announcer Rise and General Teddie. At the end of the fight, the illusion breaks regardless of who won.
In reality though, the entire tournament as a whole is Labrys's dungeon as a representation of how she was forced to fight against her will. However, she had absolutely no knowledge of the Yasogami High School students or of its settings thus the setting of the tournament and of its participants was established by an outside force.
- The arcade version of the game is set to randomly play the stage and theme of either player 1 or player 2's character. Judging by this, the stage for each character is: Room 2-2 (Yu, Aigis), Yasogami Outdoors (Yosuke (Day), Mitsuru (Night)), Yasogami Entrance (Chie), Music Club Room (Yukiko), Outside Area (Kanji, Naoto), Mayonaka TV Entrance (Teddie, Elizabeth), Yasogami Gym (Akihiko), Announcement Room (Labrys (Normal), Shadow Labrys (Incinerator)).