Billy Bones appears at the very outset of the story with a mysterious sea chest, looking for a wayside inn with a view of the sea but little traffic. Bones decides upon the Admiral Benbow Inn where he asks to be addressed merely as "Captain". Though his down-payment for lodgings is adequate, even generous, he stays for many months and browbeats Jim Hawkins's father out of asking for more money even when his deposit has been spent. He does, however, pay Jim fourpence a month to keep watch for "a seafaring man with one leg". Though he seems sometimes on the verge of deciding this a waste of money, he invariably repents. Most of the daytime is spent walking the cliffs and looking out to sea.
A habitual drunkard, the Captain terrorizes the customers of the Benbow with his swearing, singing and general bullying. Yet he begins to attract customers by his very notoriety and earns some admiration from locals who consider him a "real old salt". The winter after his arrival the Captain is visited by Black Dog, a villainous-looking man with two fingers missing from his hand. There is a noisy argument between the two which turns into a sword fight and the Captain drives off a wounded Black Dog. As soon as the unwelcome visitor is gone, the Captain suffers a stroke. He is tended to by Dr. Livesey who discovers the real name of the Captain to be Billy Bones when his arm is bared as a prelude to a surgical bloodletting and finds the name tattooed there.
The doctor saves his life and warns him to lay off rum or it will be the death of him. Bones does not heed Livesey's warning over his excessive drinking. He is plainly weakened by his stroke and the shock of Black Dog's visit, and at one point Hawkins even hears him sing a country love-song, a gentle relic of his innocent days as a youth. He admits to Jim Hawkins that he sailed with Captain Flint, the notorious pirate, and was first mate on his ship. This explains much of the mysterious circumstances and solitary behaviour of the early part of the story.
A few days later, a blind pirate known only as Pew reaches the inn, and Bones is plainly terrified. Pew slips a "black spot" into Bones's hand and departs. Immediately, Bones suffers a second stroke and dies. Bones was in possession of Flint's map showing the island and exact location on the island where his buried treasure would lie: this is found by Hawkins when the chest is searched. Captain Flint gave it to Bones on his deathbed.