One of the objectives of the paper is to identify and define concepts like immersion, presence and interaction in digital games. The paper will also try to understand the relation between these concepts and how dependent they are on each other. Having defined these concepts, the main aim of the paper is to investigate the above-said concepts in Augmented Reality (AR) games for smartphones. The paper will evaluate how factors such as immersion, presence and interaction work together to create a good gaming experience while playing games on smartphones. The paper will also investigate how elements of the games like story, mechanics and aesthetics influence immersion, presence and interaction.