Billy Budd is a seaman impressed into service aboard HMS Bellipotent in the year 1797, when the Royal Navy was reeling from two major mutinies and was threatened by the Revolutionary French Republic's military ambitions. He is impressed to this large warship from another, smaller, merchant ship, The Rights of Man (named after the book by Thomas Paine). As his former ship moves off, Budd shouts, "And good-bye to you too, old Rights-of-Man."
Billy, a foundling from Bristol, has an innocence, good looks and a natural charisma that make him popular with the crew. He has a stutter, which becomes more noticeable when under intense emotion. He arouses the antagonism of the ship's master-at-arms, John Claggart. Claggart, while not unattractive, seems somehow "defective or abnormal in the constitution", possessing a "natural depravity." Envy is Claggart's explicitly stated emotion toward Budd, foremost because of his "significant personal beauty," and also for his innocence and general popularity. (Melville further opines that envy is "universally felt to be more shameful than even felonious crime.") This leads Claggart to falsely charge Billy with conspiracy to mutiny. When the captain, Edward Fairfax "Starry" Vere, is presented with Claggart's charges, he summons Claggart and Billy to his cabin for a private meeting. Claggart makes his case and Billy, astounded, is unable to respond, due to his stutter. In his extreme frustration he strikes out at Claggart, killing him instantly.
Vere convenes a drumhead court-martial. He acts as convening authority, prosecutor, defense counsel and sole witness (except for Billy). He intervenes in the deliberations of the court-martial panel to persuade them to convict Billy, despite their and his beliefs in Billy's moral innocence. (Vere says in the moments following Claggart's death, "Struck dead by an angel of God! Yet the angel must hang!") Vere claims to be following the letter of the Mutiny Act and the Articles of War.
Although Vere and the other officers do not believe Claggart's charge of conspiracy and think Billy justified in his response, they find that their own opinions matter little. The martial law in effect states that during wartime the blow itself, fatal or not, is a capital crime. The court-martial convicts Billy following Vere's argument that any appearance of weakness in the officers and failure to enforce discipline could stir more mutiny throughout the British fleet. Condemned to be hanged the morning after his attack on Claggart, Billy before his execution says, "God bless Captain Vere!" His words were repeated by the gathered crew in a "resonant and sympathetic echo."CH 26
The novel closes with three chapters that present ambiguity:
- Chapter 28 describes the death of Captain Vere. In a naval action against the French ship, Athée (the Atheist), Captain Vere is mortally wounded. His last words are "Billy Budd, Billy Budd."
- Chapter 29 presents an extract from an official naval gazette purporting to give the facts of the fates of John Claggart and Billy Budd aboard HMS Bellipotent – but the "facts" offered turn the facts that the reader learned from the story upside down. The gazette article described Budd as a conspiring mutineer likely of foreign birth and mysterious antecedents who is confronted by John Claggart. The master-at-arms, loyally enforcing the law, is fatally stabbed by Budd. The gazette concludes that the crime and weapon used suggest a foreign birth and subversive character; it reports that the mutineer was executed and nothing is amiss aboard HMS Bellipotent.
- Chapter 30 is a cheaply printed ballad, "Billy in the Darbies," written by one of Billy's shipmates as an elegy. The adult, experienced man represented in the poem is not the innocent youth portrayed in the preceding chapters.