The film is set in the fictional County Durham mining town of Everington Village during the 1984-85 UK miners' strike, and centres on the character of 11-year-old Billy Elliot, his love of dance, and his hopes of becoming a professional ballet dancer. Billy lives with his widowed father, Jackie, and older brother, Tony, both coal miners out on strike (the latter being the union leader), and also his maternal grandmother, who probably has Alzheimer's disease and once aspired to be a professional dancer. Billy's mother, Jenny, died on 2 December 1983, aged 38.
Billy's father sends him to the gym to learn boxing, but Billy dislikes the sport. He happens upon a ballet class that is using the gym while their usual basement studio is temporarily being used as a soup kitchen for the striking miners. Unknown to Jackie, Billy joins the ballet class. When Jackie discovers this, he forbids Billy to take any more ballet. But, passionate about dancing, Billy secretly continues lessons with his dance teacher Sandra Wilkinson's help.
Mrs. Wilkinson believes Billy is talented enough to study at the Royal Ballet School in London, but due to Tony's arrest during a skirmish between police and striking miners, Billy misses the audition. Mrs. Wilkinson tells Jackie about the missed opportunity, but fearing that Billy will be considered to be gay, both Jackie and Tony are outraged at the prospect of Billy becoming a professional ballet dancer.
Over Christmas, Billy learns his best friend, Michael, is gay. Although Billy is not, he is supportive of his friend. Later, Jackie catches Billy dancing in the gym and realises his son is truly gifted; he will do whatever it takes to help Billy attain his dream. Mrs Wilkinson tries to persuade Jackie to let her pay for the audition, but he replies that Billy is his son and he does not need charity. Jackie attempts to cross the picket line to pay for the trip to London, but Tony blocks him. Instead, his fellow miners and the neighbourhood raise some money and Jackie pawns Billy's mother's jewellery to cover the cost, and Jackie takes him to London to audition for the Royal Ballet School. Although very nervous, Billy performs well, but he punches another boy in his frustration at the audition and the fear that he has ruined his chances of attaining his dream. He is sternly rebuked by the review board, but when asked what it feels like when he is dancing, he describes it as being like electricity. Seemingly rejected, Billy returns home with his father. Sometime later, he receives confirmation that he has been accepted by the Royal Ballet School, and he leaves home to attend.
The film's final scene is set fourteen years later (approximately 1999): the mature Billy takes the stage to perform the lead in Matthew Bourne's Swan Lake, as Jackie, Tony, and Michael watch from the audience.