Captain Vere's recollections as an old man frame the action of the opera. As he looks back over a long life of study as well as action, he muses that he has seen much evil and good, though the latter has never been perfect. Meant to lead others, he feels that he has lived in a state of confusion and wonders who has blessed him. In 1797, shortly after the mutiny at the Nore by British seamen, he was in command of the Indomitable, fighting against the French.
SCENE 1: Early morning on board the Indomitable
Sailors are scrubbing the deck. The Novice accidentally falls foul of the Bosun, who orders Squeak, a corporal, to give him 20 lashes. The cutter which had been dispatched under the command of Mr Ratcliffe, the Second Lieutenant, to board a merchant vessel, The Rights o' Man, to impress men, arrives back with three sailors.
Under the supervision of Mr Redburn, the First Lieutenant, and Mr Flint, the Sailing Master, John Claggart, the Master-at-Arms, examines the recruits. Red Whiskers is old and unco-operative, Arthur Jones is younger, but not promising, but it is the third man, Billy Budd, who attracts instant admiration, even from the sardonic Claggart, who describes him as a "King's bargain," despite his defect - an intermittent stammer. He knows nothing of his antecedents, having been a foundling, is unable to read, but can sing.
He is assigned to the foretop and accepts eagerly, bidding a cheerful farewell to his old ship, whose name, Rights o' Man, arouses suspicion in the minds of the officers that he is a potential mutineer. They warn Claggart to keep an eye on him, but he, aware that Budd is no danger, reflects that he knows more of men's weaknesses than they do. He orders Squeak to wage a campaign of petty irritation against Billy, promising to stand by him if he is caught, but warning him against Billy's temper and fists.
The Novice, barely able to stand after his punishment, is supported by his friend. Claggart is umoved by his plight, but Billy, who has never seen blood shed for no reason, is appalled. Dansker, an old sailor, warns Billy against "Jemmy Legs" - Claggart. Learning that the Captain's name is nicknamed "Starry" Vere, and that he is admired by the men, Billy swears to serve him loyally.
SCENE 2: Captain Vere's cabin
Vere invites the First Lieutenant and Sailing Master to join him in a drink. They toast the king and drink confusion to the French. They discuss the ever-present danger of mutiny, which looms large in their minds after the recent uprisings at Spithead and the Nore. Vere, while admitting that there may have been legitimate grievances in the first instance, regards the Nore incident as an example of the spread of seditious French revolutionary ideas.
Still influenced by Billy Budd's farewell to "the old Right o' Man, " the two officers consider him a potential danger, but Vere assures them that this was simply high spirits. He listens with satisfaction to the men singing below decks. The second Lieutanant reports that Cape Finisterre has been sighted; the ship is now in enemy waters.
SCENE 3: The berth-deck
The men off watch are singing shanties. When Dansker expresses the wish for a plug of tobacco, Billy offers to get him one and discovers Squeak interfering with his kit. They struggle and Squeak draws a knife, but is soon felled by Billy. When Squeak tries to claim Claggart's protection, he is put in irons and gagged. Claggart commends Billy: "Handsomely done my lad. And handsome is as handsome did it, too." But he lashes out at a boy who stumbles against him, and reveals in a soliloquy his hatred of Billy because of his handsomeness and goodness, vowing to destroy this being who shines such light into the darkness of his own natural depravity.
Squeak having failed him, he browbeats the Novice into trying to suborn Billy into mutiny with two gold guineas. The Novice's fear of further punishment gets the better of his reluctacne to betray Billy. The Novice approaches the sleeping Billy, begging him to be the leader of a supposed party of discontented impressed men, but Billy, stammering in his rage, drives him away. He tells Dansker what has happened, and the old sailor, identifying the source of the trouble, warns him that "Jemmy Legs" is down on him, but Billy declares that Claggart, like everyone else on board, likes him.
SCENE 1: The main-deck and quarter-deck, some days later
The ship is surrounded by mist as Claggart approaches Captain Vere to make a complaint about a danger to the ship. He is interrupted by the cry that a French ship has been sighted. The men, who have been impatiently waiting such a chance, prepare to chase it - Billy, Dansker, Red Whiskers and another sailor, Donald, volunteer for a boarding party - but it is too fast, and the crew subsides into grumbling. Claggart again approaches the impatient Vere, accusing Billy of mutiny and producing the two gold coins as evidence that he had been trying to recruit followers. Although sceptical, Vere has to question Billy and has him summoned quietly to his cabin.
SCENE 2: The Captain's cabin, a few minutes later
Billy, having heard rumors that he is to be promoted, is all eagerness, begging to be allowed to be the Captain's coxswain. Vere, though even more convinced of Billy's innocence and suspicious of Claggart, is obliged to confront Billy with his accuser.
When Claggart accuses Billy of mutiny, he is struck by his stammer and, in frustration at his inability to answer, strikes Claggart on the forehead and he falls dead.
Vere calls a drum-head court-martial, presided over by his officers (he has to be a witness). Billy answers that he is loyal to his king and ship, but has to admit striking Claggart. He begs Vere to save him, and is sent out as the court deliberates. The officers ask Vere for counsel, but he is unable to help them and reluctantly they sentence Billy to hang from the yard-arm at dawn. Vere, fully aware of the anomaly of having to execute a good man for the inadvertent killing of an evil one, goes to break the news to him.
SCENE 3: A bay of the gun-deck before dawn
In irons, Billy prepares tranquilly for his fate. Dansker brings him food and drink and advises that the men are prepared to mutiny on his account, but Billy warns that they will hang without saving him. Billy reflects that fate had ordained his killing of Claggart and his own death.
SCENE 4: The main-deck and quarter-deck, four o'clock in the morning
The first Lieutenant reads the Articles of War, by which Billy has been condemned, and the sentence. Billy calls out "Starry Vere, God bless you!" echoed by the crew. As he is hanged, a murmur arises among the men, but they disperse when ordered.
Years later, Vere reflects that he could have saved Billy, whose goodness he feels has in some way blessed him.