In 1799, while harbored in the island of St. Maria near Chile, Captain Amasa Delano, Massachusetts-born skipper of the Bachelor's Delight, spots an odd vessel and decides to investigate. Upon approaching the ship, Delano notices that it is in very bad condition, that the figurehead has been covered up as though for repairs, and that the boat is being manned erratically. A closer look only increases the oddness: the majority of people on the boat, which is called the San Dominick, are black.
Delano boards the San Dominick to find abundant disarray. The whites and blacks mill together aimlessly, and there is only the slightest hint of order. Four "grizzled" elderly black men, perched at each of the four corners of the deck, watch over the throng while picking oakum. Also, six black men sit together on the stairwell leading to the poop and sharpen hatchets. Perturbed by the appearance of things, Delano seeks out the captain of the San Dominick, the pale and distracted Benito Cereno.
After Delano has sent his whaleboat back to the Bachelor's Delight to retrieve provisions and riggings for the floundering San Dominick, he and Cereno begin to talk about the events that led to the San Dominick's obvious misfortune. Cereno tells Delano of a cruel combination of violent storms followed by disease-filled calms, which carried away a great proportion of his crew over the course of nine months or so. He says that the blacks Delano sees are slaves, once the property of Don Alexandro Aranda, who died in the course of the San Dominick's misfortunes. All the while, Cereno is attended upon by an extremely officious slave named Babo.
While Cereno tells Delano his miserable history, Delano notices several mysterious events on board the San Dominick. He witnesses the blacks on board the boat taking great liberties with the whites, and when he brings this up to Cereno, his concerns are flippantly dismissed. Cereno's apparent lack of concern for the behavior of his slaves is contradicted, however, by the appearance of a mighty black man named Atufal, who, due to some offence against Cereno, is forced to bear chains and appear before his captain every other hour until he begs pardon. Delano finds this treatment ghastly, but his naturally optimistic outlook on things attempts to smooth away any contradictions he may see.
Meanwhile, Cereno and Babo begin to confer privately, a very unusual and grievous affront to the normal conduct of captains. Cereno returns from these conferences with uncomfortable questions about the state of Delano's arsenal and cargo aboard the Bachelor's Delight. Delano begins to suspect that Cereno is not a Spanish captain at all, but an imposter. However, once again his sunny disposition prevails.
Uncomfortable with Babo and Cereno's behavior, Delano takes a turn about the ship, only to see still more unusual behavior. He witnesses another black-on-white assault, which Cereno again ignores. Delano also finds himself the center of attention for several of the old Spanish sailors on board, one of whom appears to make obscure signals to him from the shadows of the anchor chain and another of whom hands him a very complicated knot, saying, "Cut it." However, for every odd occurrence, Delano witnesses something that cheers him up. He looks with approval upon the slave women tending their babies; he admires the submissive behavior of Babo towards Cereno. (His admiration for the slaves is always condescending and racist.)
Delano catches sight of his whaleboat returning with provisions, the sight of which cheers him considerably. Meanwhile, his feelings about Benito Cereno continue to oscillate. Cereno's story does not fit together entirely; even given the unprecedented calms and storms he says he suffered, it is impossible that Cereno's boat should still be so near its port of departure nearly a year after sailing. Cereno evades Delano's attempts to address these questions; however, optimism prevails, as usual, and he accompanies Cereno to the Spaniard's afternoon shave. Babo shaves Cereno with an attentiveness that pleases Delano considerably. However, Cereno squirms under the slave's razor. Once again, Delano shrugs off any sense of oddness.
His boat arrives with the supplies and, after handing them out to black and white alike, Delano accompanies Cereno and Babo to the captain's cabin for dinner. Delano attempts to secure a private audience with Cereno in order to discuss the matter of recompense for the food and riggings. Cereno, however, adamantly refuses to part from Babo's side, even for a moment. Frustrated once more, Delano takes a turn about the deck, during which he senses wind. Delano takes it upon himself to pilot the San Dominick back to his own ship, the Bachelor's Delight. As they near the harbored ship, Delano invites Cereno on board, an invitation which Cereno refuses, thoroughly offending Delano. He spends the rest of the voyage back to the Bachelor's Delight apart from Cereno.
Upon reaching the ship, however, Cereno emerges for a farewell. Delano, eager to forgive, accepts Cereno's hand as he crosses the gangplank. However, instead of releasing his grip, Cereno holds as hard as he can, and when Delano finally wrenches his hand free, Cereno leaps over the gangplank onto the Bachelor's Delight. Babo leaps after him with a dagger in his hand. The truth finally occurs to Delano, after his long afternoon on the San Dominick: there has been a mutiny on board, and the blacks are in charge of the boat.
The San Dominick flees from the scene of this disclosure, and a whaleboat from the Bachelor's Delight gives chase. After a struggle, the sailors of the Bachelor's Delight are able to seize control of the San Dominick and to re-enslave the rebellious Africans, including Babo.
Weeks later, an inquest is held in which Cereno testifies about the truth of the events on board the San Dominick. He tells the story of the slave mutiny, as well as of the death of his friend and the slaves' master, Alexandro Aranda, who was killed and skeletonized in the course of the rebellion and whose skeleton was then mounted as a figurehead on the San Dominick.
Physically and morally exhausted by the ordeal on the San Dominick, Benito Cereno retires to a monastery following the inquest, where he often visits with Delano. He professes that he is eternally grateful for Delano's appearance in his life, but confesses that he is not long for this world. When Delano asks why, Cereno replies, "The negro." Babo is hanged and then beheaded. His head is mounted on a pike in Lima as a warning. It overlooks both Aranda's grave and Cereno's monastic retreat. Three months after the inquest, Benito Cereno also dies.