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The 16-bit era, or Fourth Generation, kicked off with the release of the NEC's TurboGrafx-16 in 1987. With this new era came hardware more powerful than their 8-bit counterparts, able to handle more colorful and detailed graphics and more complex games.

However, the first 16-bit system to truly gain momentum worldwide was the Sega Genesis (Mega Drive in PAL regions). Sega released this console in order to compete with the aging 8-bit Nintendo Entertainment System. At this point, it was feasible to make 16-bit console hardware based off their Sega System-16 arcade hardware. The Genesis did fairly well at first, then it really took off with Sega's Breakthrough Hit, Sonic The Hedgehog 1. Nintendo saw its almost monopolistic dominance erode with the competition's more advanced hardware, and they responded with the Super Nintendo Entertainment System. The fierce Console War between the Genesis and the SNES defined the era, with both parties in a huge race for dominance of the industry.

In terms of actual game design, the 16-bit era wasn't as big of a leap as the 8-bit era was to the Golden Age. The most successful games of the 16-bit era were often fleshed out and refined versions of their 8-bit counterparts design-wise. Many successful series from the 8-bit era gained many of their standards in this era, such as The Legend of Zelda in A Link to the Past. The industry made much bigger leaps in the graphics department. Games like Sonic The Hedgehog 1, Ecco The Dolphin, and Yoshis Island were shining examples of Awesome Art with their well-drawn sprites and detailed environments. The releases of Mortal Kombat and Donkey Kong Country sparked a craze in Digitized Sprites on consoles, with notable games following suit including Vectorman and Super Mario RPG. The era also produced early experiments with Polygonal Graphics on home consoles, most notably Star Fox but also including arcade ports.

The Platform Game's popularity from the Eight Bit Era continued into this generation, highlights including the Super Mario Bros' series fourth installment, Super Mario World and the aforementioned Genesis Killer App Sonic The Hedgehog 1. One genre that was born, so to speak, in this generation was the Fighting Game. Spurned by the revolutionary Street Fighter II, many studios responded to capitalize on its success, with Mortal Kombat being a notable entry. The Fighting genre wouldn't see as big of a revolution until Virtua Fighter in the Fifth Generation. The JRPG genre also hit its stride during the Sixteen Bit Era, with Square making some of the most well-loved ones of all time like Final Fantasy VI, Chrono Trigger, and Super Mario RPG, paving the way for its wider mainstream success in the next generation.

In this generation, portable gaming systems began to gain traction with the release of the Nintendo Game Boy and Atari Lynx in 1989 and the Sega Game Gear in 1990. While the Lynx failed to gain much success, Nintendo and Sega's efforts gave gamers versions of their favourite franchises to take with them when they were away from their televisions. While Sega's system certainly benefited from its colored screen, it was ultimately the Game Boy that would win out by a considerable margin, boosted by the inclusion of Tetris as a pack-in game making the system more appealing to those who weren't already interested in video games than Super Mario Land might (sound familiar?), though the fact that it was significantly cheaper, more pocketable and had much better battery life also helped. Its success would continue into the next generation.