Generative AI (GenAI), encompassing image generation and large language models (LLMs), has opened new avenues for gameplay experiences. This paper introduces" 1001 Nights", a narrative game centered on GenAI. Drawing inspiration from Wittgenstein's note," The limits of my language mean the limits of my world", the game exemplifies the concept of language as reality. The protagonist, Shahrzad, possesses a unique power: specific keywords, such as" sword" or" shield", when spoken by others in tales, materialize as tangible weapons, serving as battle equipment against the King. Players guide the LLM-driven King in co-creating narratives, with GPT-4 employing LLM reasoning methods to ensure story consistency. As these narratives progress, the depicted world is dynamically generated and visualized through Stable Diffusion, blurring the boundaries between narrative and in-game reality. This fusion of interactive storytelling combines gameplay paradigms and story together with dynamic content generation. Players not only aim to alter Shahrzad's fate from the original folklore, but also leverage the power of natural language to shape the game's world. With this example, we propose the term" AI-Native games" to categorize innovative games where GenAI is fundamental to the game's novel mechanics and very existence.