Go to the level selection screen

Press START to see a new option labled COSTUMES alongside the SAVE and EXIT options.
Highlight the COSTUMES option, press the "A" button and select the desired costume of your choice.

Get Chameleon Costumes

Play any level and get all 20 golden coins. After you beat the boss you will be rewarded with a chameleon costume.

Different Background Pictures

When you beat the game you will be rewarded with new background pictures. To see them you need to save the game on an N64 controler pack after you beat chamelon twist 2. You will see the new pictures when you reset the N64 or exit any option screen (training, options, etc.)