In Chinese tradition, the fifteenth day of the seventh month in the lunar calendar is called Ghost Day and the seventh month in general is regarded as the Ghost Month (鬼月), in which ghosts and spirits, including those of the deceased ancestors, come out from the lower realm. Distinct from both the Qingming Festival (in Spring) and Chung Yeung Festival (in Autumn) in which living descendants pay homage to their deceased ancestors, on Ghost Day, the deceased are believed to visit the living.

On the fifteenth day the realms of Heaven and Hell and the realm of the living are open and both Taoists and Buddhists would perform rituals to transmute and absolve the sufferings of the deceased. Intrinsic to the Ghost Month is ancestor worship, where traditionally the filial piety of descendants extends to their ancestors even after their deaths. Activities during the month would include preparing ritualistic food offerings, burning incense, and burning joss paper, a papier-mache form of material items such as clothes, gold and other fine goods for the visiting spirits of the ancestors. Elaborate meals would be served with empty seats for each of the deceased in the family treating the deceased as if they are still living. Ancestor worship is what distinguishes Qingming Festival from Ghost Festival because the latter includes paying respects to all deceased, including the same and younger generations, while the former only includes older generations. Other festivities may include, buying and releasing miniature paper boats and lanterns on water, which signifies giving directions to the lost ghosts and spirits of the ancestors and other deities.

The Ghost Festival shares some similarities with the predominantly Mexican observance of El Día de los Muertos. Due to theme of ghosts and spirits, the festival is sometimes also known as the Chinese Halloween, though many have debated the difference between the two.

The Ghost Festival is celebrated during the seventh month of the Chinese Lunar calendar. It also falls at the same time as a full moon, the new season, the fall harvest, the peak of Buddhist monastic asceticism, the rebirth of ancestors, and the assembly of the local community. uring this month, the gates of hell are opened up and ghosts are free to roam the earth where they seek food and entertainment. These ghosts are believed to be ancestors of those who have forgotten to pay tribute to them after they had died, or those who have suffered deaths and were never given a proper ritual for a send-off. They have long thin necks because they have not been fed by their family, or it is a sign of punishment so they are unable to swallow. Family members offer prayers to their deceased relatives and burn joss paper. Such paper items are only valid in the underworld, which is why they burn it as offering to the ghosts that have come from the gates of hell. The afterlife is very similar in some aspects to the material world, and the paper effigies of material goods would provide comfort to in the afterlife. People would also burn other things such as paper houses, cars, servants and televisions to please the ghosts.

Families also pay tribute to other unknown wandering ghosts so that these homeless souls do not intrude on their lives and bring misfortune and bad luck. A large feast is held for the ghosts on the fourteenth day of the seventh month, where everyone brings samplings of food and places them on the offering table to please the ghosts and ward off bad luck. In some East Asian countries today, live performances are held and everyone was invited to attend. The first row of seats are always empty as this is where the ghosts sit. The shows are always put on at night and at high volumes as the sound attracts and please the ghosts. Some shows include Chinese opera, dramas, and in some areas, even burlesque shows. These acts are better known as "Merry-making".

For rituals, Buddhist and Taoists hold ceremonies to relieve ghosts from suffering, many of them holding ceremonies in the afternoon or at night (as it is believed that the ghosts are released from hell when the sun sets). Altars are built for the deceased and priests and monks alike perform rituals for the benefit of ghosts. Monks and priests often throw rice or other small foods into the air in all directions to distribute them to the ghosts.

During the evening, incense is burnt in front of the doors of each household. Incense stands for prosperity in Chinese culture, so families believe that there is more prosperity in burning more incense. uring the festival, some shops are closed as they wanted to leave the streets open for the ghosts. In the middle of each street stood an altar of incense with fresh fruit and sacrifices displayed on it.

14 days after the festival, to make sure all the hungry ghosts find their way back to hell, people flow water lanterns and set them outside their houses (a practice mostly found amongst the Japanese). These lanterns are made by setting a lotus flower-shaped lantern on a paper boat. The lanterns are used to direct the ghosts back to the underworld, and when they go out, it symbolizes that they found their way back.