An update named NBA Jam Tournament Edition (commonly referred to as NBA Jam T.E.) featured updated rosters, new features and easter eggs combined with the same gameplay of the original. Jon Hey created new music specifically for NBA Jam T.E. to replace the original NBA Jam music. Teams now consisted of three players (though only two could be on court at any time), with the exception of the new "Rookies" team, which consists of five players, all picked in the 1994 NBA Draft, and players could be substituted into the game at half time. The game also featured new hidden teams and hidden playable characters. Early versions of the game included characters from Midway's Mortal Kombat games. Players were also assigned more attributes, including clutch and fatigue levels. In addition, the game also introduced features such as a "Tournament" mode that turned off computer assistance and on-court hot spots that allowed for additional points or special slam dunks.

The test version of NBA Jam Tournament Edition included six hidden characters which were taken out of the final version at the request of the NBA: Elviscious, Grim Reaper, Kong, Raiden, Reptile, and Sub-Zero. Midway also stated they would update all test version cabinets to remove these characters.

This version was also ported to the SNES, Genesis, 32X, Game Boy, Game Gear, Sega Saturn, PlayStation and Atari Jaguar.