Billy Jack (Tom Laughlin) goes to court facing an involuntary manslaughter charge stemming from events in the earlier film. He is found guilty and sentenced to a prison term. Meanwhile, the kids at the Freedom School—an experimental school for runaways and troubled youth on a Native American reservation in Arizona—vow to rebuild the school. They raise funds and acquire a new building, eventually starting their own newspaper and television station. Inspired by Nader's Raiders, they begin using the newspaper and TV station to conduct investigative reporting, angering several politicians and townspeople in the process with their exposés.
The school's activities range from having their own search and rescue team, to artistic endeavors such as a marching band and belly dancing. This culminates with the school hosting a large marching band contest and arts festival, which they call "1984 is Closer Than You Think", to raise money for the school.
Midway through the film, Billy Jack is released from prison and, trying to reconnect with his spiritual beliefs, begins a series of lengthy vision quests. He gets involved in a radical group on the reservation which is trying to oppose the federal de-recognition of their tribe and the turning of their tribal lands over to local developers. When one of the tribal members is arrested for poaching deer on what was formerly tribal land, the school comes to his defense.
The school begins to hold hearings on Native rights and child abuse. One of the children at the school was abused by his father who cut off his hand in a fit of rage, and the school defies a court order to turn the boy back over to his father. The FBI begins visiting the school and taps their phones. As tensions mount between the school and the people in the nearby town, a mysterious explosion at the school knocks their television station off the air. The governor calls a state of emergency and mobilizes the National Guard, and a curfew is established in town. The students respond by holding a parade in the town in violation of the curfew. On the way back to the school their bus breaks down and local townspeople confront the students and threaten to set their bus on fire. Billy Jack shows up during the incident to protect the students, and then comes to the rescue of a tribal member who is being harassed and beaten at a local dance in town. Near the end of the film, the National Guard is stationed around the school and is ordered to open fire on the students, killing four and wounding hundreds more.
The entire story is told in flashbacks by Jean Roberts (Delores Taylor, Laughlin's wife), a teacher at the school, from her hospital bed after the shooting incident. The violence in the finale is a symbolic bookend to the massacre of Vietnamese civilians seen in the beginning of the film. During Billy's trial, he mentions the 1968 My Lai massacre and recalls, in a flashback scene, witnessing a similar incident while serving in Vietnam.
According to Variety by 1976 the film had earned $6,716,000 in rentals in North America.
The film was a commercial success upon its release in theaters, but met with a harsh reaction from movie critics. Leonard Maltin called it an "awful, pretentious film". Donald Guarisco of AllMovie wrote: "Ultimately, most viewers are likely to be baffled by The Trial of Billy Jack, and it can only be recommended to B-movie fans with a hearty constitution...it's a mess, but it's a fascinating mess." Despite its initial commercial success, it marked the effective end of success for the Billy Jack series. It was followed by another film, Billy Jack Goes to Washington in 1977, which never saw widespread theatrical release. A fifth movie, The Return of Billy Jack filmed in 1985-86, was never completed and remains unreleased. The Trial of Billy Jack was included as one of the choices in the 1978 book The Fifty Worst Films of All Time.