Captain Vere, an old man, is haunted by a moment in his life when he was tested and found wanting.
Years earlier, on board HMS Indomitable, a British man-of-war, during the French wars of 1797, sailors are at work. A boarding party returns from a passing merchant ship, the Rights o’ Man, with three men impressed for naval service. John Claggart, Master-at-Arms, interviews them but only the last, Billy Budd, pleases the officers, despite his stammer. But his impassioned farewell to the Rights o’ Man is misunderstood as a revolutionary declaration, and Claggart, responsible for discipline, is told to watch Billy. He sets his corporal, Squeak, to harass Billy. A Novice returns from a flogging, and Donald and Dansker caution the new recruits that no one escapes punishment. They warn against Claggart while declaring their devotion to Vere.
A week later, Vere meets with two officers in his cabin and they discuss the recent naval mutinies at Spithead and the Nore. Vere discounts their fears about Billy’s influence on the men. Another officer arrives to announce that enemy land has been sighted.
Below the decks, the same evening, Billy discovers Squeak meddling with his kit-bag and they fight. Claggart arrives and has Squeak arrested. Alone, Claggart voices his determination to destroy Billy. He forces the Novice to try to bribe Billy into leading a mutiny. Billy awakens to hear the Novice’s proposal. Furious at the idea of mutiny, he can only stammer. Dansker tells Billy that Claggart is behind it all, but Billy refuses to believe him.
Some days later, Claggart is telling Vere that there is a dangerous sailor aboard, when a French ship is sighted. The crew are called to action stations and a shot is fired, but the wind fails, the mist returns and the chase is abandoned. Claggart returns to Vere and again accuses Billy of planning a mutiny. Vere orders both men to his cabin.
Billy arrives in Vere’s cabin to be confronted by Claggart’s false accusation of inciting mutiny. Unable to speak to defend himself, Billy strikes Claggart, who falls dead. Vere summons his officers to an immediate drumhead court martial, knowing that the penalty for striking a superior officer is death. Aware of the injustice of the death sentence in this instance, the officers appeal to Vere for guidance; he remains silent, the officers reluctantly resolve that Billy should be hanged at dawn.
The next morning, shortly before dawn, Billy awaits his execution.
On deck, at four o’clock the same morning, the crew assemble to witness the hanging. Billy’s final words are ‘Starry Vere, God bless you!’ After the hanging the crew turn on the officers in anger. When they are ordered below, their rebellion subsides into sullen obedience.
Vere, now an old man, knows he has failed Billy and himself: he could have saved him. He receives Billy’s last words as a kind of benediction, redeeming him at the last.