In the West Coast of England in 1765, a young boy called Jim Hawkins lives with his mother in a tiny country inn which they run. Captain William Bones, a sickly lodger and merchant marine, gives Hawkins a treasure map after being visited by two pirates, the second of whom (and whom also sports a large scar across his face) gives the captain a note marked with the black spot. That same night Bones is found dead at the inn, and Jim shows Squire Trelawney the map. Trelawney recognizes the map as belonging to the late buccaneer pirate Captain Flint and bankrolls a voyage to discover the pirate's lost treasure. Trelawney hires Captain Smollett and his ship, the Hispaniola, bringing along his friend Dr. Livesey as the ship's doctor and Jim as the cabin boy.
Before departure Trelawney is taken in by Long John Silver, a one-legged inn-keeper and cook, who agrees to gather a crew. Silver strikes up a friendship with Jim and joins the expedition as the ship's cook. Smollett is concerned about the crew, especially when he reveals to Trelawney that the nature of their journey is common knowledge.
At sea Jim overhears Silver and the crew's plan to mutiny, discovering that the seamen hired by Silver are Captain Flint's old crew of pirates (Silver worked as the cook aboard Flint's ship). Jim reveals the treachery to Smollett who asks Jim to stay friends with Silver to learn more. Upon reaching Treasure Island, Silver offers to tow the ship to a safer anchorage, using two of the ship's row boats. While the ship is being towed, one of Silver's men, Merry, leads a mutiny on the ship. Smollett, having been forewarned of the plot by Jim, is able to hold them off with the few men loyal to him and imprisons the mutineers below decks. Silver cuts the row boats from the Hispaniola and heads for shore with the rest of his men, taking Jim as a hostage. Smollett, Trelawney, and Livesey go ashore after them, leaving two guards on the ship.
On the island, Jim escapes and meets Ben Gunn, a disheveled sailor marooned by Flint on the island five years ago. Gunn shows Jim the boat he's built, then leads him to Flint's stockade, where he meets up with Smollett and the others. Meanwhile, Merry escapes, takes the ship and raises the Jolly Roger skull and bones flag. Silver returns to the Hispaniola, arms his men with muskets and makes plans to take the stockade. Short of men, Silver attempts to parlay with Smollett, but when he is rebuffed, Silver calls his men to attack. The assault on the stockade fails with many of the pirates killed and wounded, but Silver shoots and wounds Smollett before retreating. Although seemingly protected by the stockade, Smollett surmises that, with the morning tide, Silver could move the Hispaniola into cannon range and level the fort.
That evening, Jim takes Gunn's boat and cuts the Hispaniola's anchor rope. Jim also witnesses two of Long John Silver's men argue, leading to one of them killing the other. The pirate guard, Israel Hands, discovers Jim and chases him up into the ship's rigging to the crows nest. Hands injures Jim arm with a throwing knife but is killed by the boy's pistol who then falls overboard. Jim strikes the Jolly Roger and hoists the Union Jack.
Slowed by his wound, it takes him all night to get back to the stockade, which is unguarded. Inside, Jim searches for the doctor to tend his wound, but the man asleep under Livesey's coat is Long John Silver, which his men have taken the stockade. Jim faints on the spot. Silver finds the treasure map on him as his men wake up. Merry wants Jim dead, but Silver states he wants to trade him for the map, which his men believe is with Smollett. The men go outside to vote, pirate-style, while Silver tends to Jim and stitches up his wound. From the stockade's lookout, Silver sees that the ship's aground, flying the Union Jack.
The men give Silver the black spot, but he objects. Rattled, they let him bargain with Livesey for the map. Silver returns with Jim, flaunting the map. Long John Silver leads his men through the forest and fields using the map to locate the hidden place to the treasure. When they get to the site and begin digging, the pirates are overjoyed until they find out that the treasure (700,000 pounds sterling) isn't there. The pirates turn on Silver, who manages to kill three of them before Smollett's men appear to kill the rest. Greeting Silver, Gunn reveals that he's the one who dug up Flint's treasure years earlier and has stashed it in a cave.
After Gunn shows the treasure composed of gold and silver coins in several chests, Captain Smollett still wants Silver taken back for trial in England. Jim Hawkins, Squire Trelawney and two other loyal sailors take Silver to the Hispaniola aboard a rowboat loaded with a chest of treasure. Silver snatches Jim's pistol and forces Trelawney and the others out of the boat. He wants Hawkins to steer while he rows, but Jim beaches them instead. Silver orders Hawkins to push him off, but Jim refuses and Silver threatens to shoot him. Silver is unable to carry out his threat and drops the pistol, attempting to push the boat off himself. Seeing Silver struggle (and feeling that he owes Silver for saving his life), Jim helps him push off, waving a hesitant farewell as Silver rows away into the open ocean.