Sims was born in St. Louis, Missouri, but in the eighth grade he moved to Hooks, Texas, to live with his grandmother. Sims initially played baseball and grew up a St. Louis Cardinals fan. He showed no interest in football until moving to Texas. In three years of varsity football at Hooks High School, he rushed 1,128 times (a state record at the time, currently second behind Robert Strait) for 7,738 yards, including 441 carries in 1973 (another state record at the time, currently tied for second behind Ketric Sanford). Sims currently holds the state record for most consecutive games with 100 yards or more, 38 (1972–1974).
Sims attended the University of Oklahoma, where he played for coach Barry Switzer's Oklahoma Sooners football team from 1976 to 1979. After injuries kept him out of the lineup for most of his freshman and half of his sophomore seasons (rushing for only 545 yards in two seasons plus one game of 1976), he rushed for 1,762 yards on 231 carries as a junior, averaging 7.6 yards per carry. Including the postseason, Sims had 1,896 yards, a total yardage school record that stood until 2004 when freshman Adrian Peterson ran for 1,925 yards. In 1978 Sims was awarded the Heisman Trophy, becoming only the sixth junior to do so. He was runner-up for the Heisman the following season in 1979, coming in second to Charles White of USC.
In 1979 against then-unbeaten Nebraska, who had the No. 1 rushing defense in the country at the time, Sims ran for 247 yards and helped the Sooners to a 17–14 win. He led the nation in rushing with 1,896 yards and had 22 touchdowns. He also became the first running back in Big 8 Conference (now merged to form the Big 12 Conference) history to rush for 200-yards in three consecutive games, and had four 200-yard games in a single season.
After losing to the Arkansas Razorbacks 31–6 in 1978, Sims led the Sooners to two consecutive Orange Bowl titles in three straight appearances. In the Orange Bowl following the 1978 season, he scored two touchdowns in a 31–24 win over the Nebraska Cornhuskers. In his final game, he ran for 164 yards as Oklahoma defeated the Florida State Seminoles 24–7. Sims ended his career at OU with 3,813 yards; most of those yards came in his final two seasons.
Sims was the first overall pick in the 1980 NFL Draft. He spent his career with the Detroit Lions, making the Pro Bowl in 1980, 1981, and 1982. Sims led Detroit to the playoffs in 1982 and 1983, but they would go on to lose in the first round in both appearances. In the 1983 wild card game at Candlestick Park against the San Francisco 49ers, Sims ran for 114 yards on 20 carries, but Joe Montana would lead the 49ers to a comeback victory, as Detroit kicker Eddie Murray missed a field goal in the waning moments.
Sims' career would ultimately end midway through the 1984 season when he suffered a catastrophic knee injury in a game against the Minnesota Vikings. Sims finished his career with 1131 carries for 5106 yards (4.5 yards per carry), and 186 receptions for 2072 yards (11.1 yards per catch). He spent two years attempting to rehabilitate his knee before retiring in 1986. Sims remains a beloved former sports figure in Detroit. His number "20" would go on to be worn five years after his retirement by Barry Sanders, and is currently retired as an unofficial "Triumvirate" of the greatest Lions in the modern era to ever wear the number, which also includes Hall of Fame defensive back Lem Barney.
In 1988, four years after the knee injury that forced his retirement, Sims announced he was attempting a comeback with the Lions for 1989 season. Speaking with Detroit Free Press columnist Mitch Albom, Sims claimed to be "as fit as he was in 1983." He offered to play the season with a blank check, allowing Lions' management to assess his value and fill in the salary amount accordingly. Sims hoped to meet with then-General Manager Russ Thomas and owner William Clay Ford, Sr. to discuss a spot on the team's roster. Despite some interest from Lions' head coach Wayne Fontes, Sims never returned to the NFL.
When Billy Sims retired from the Lions in 1984, he received a $1.9 million insurance settlement from Lloyd's of London, in addition to the several million dollars he earned during his playing career. Sims lost his accumulated wealth through a series of failed business ventures, and he was forced to file bankruptcy in 1990. His numerous businesses included a nightclub, a radio station, a dry cleaner, and a car parts manufacturer. The bankruptcy eventually led to the end of his first marriage to Brenda, a junior high teacher in Hooks, Texas. Sims also struggled with legal problems stemming from jail time for unpaid child support in 1998, and a conviction of domestic violence against Edna, his second wife in 1999.
In 1995, he sold his Heisman Trophy to Texas businessman Bob White, who had been a father figure to Sims since he was in the ninth grade; White's son played high school football with Sims. The trophy was sold to White for $50,000, with the agreement that it could be re-purchased by Sims by paying the original price plus 8.5% interest. White had maintained possession of several of Sims' trophies, including the Heisman, for safekeeping. Sims would occasionally borrow the Heisman for use during public appearances, but in June 2001 he sold the trophy to Scott Goodman for $88,000. Goodman was president of Sports World, a memorabilia company. Goodman intended to sell the Heisman through a telephone auction, but cancelled the sale when an attempt by Federal agents to seize the trophy for back child support, and a lawsuit from Bob White brought negative publicity to the auction. White was able to prove his ownership of the Heisman, and a Texas court ordered the trophy to be returned to him.
Sims began giving the "Boomer! Sooner!" Oklahoma cheer immediately following the naming of the winner at the Heisman Trophy induction ceremonies of the two most recent Oklahoma Sooner winners, Jason White and Sam Bradford, and held up a sign reading "Boomer" during the 2009 Heisman ceremony. He was inducted into the College Football Hall of Fame in 1995. A hero in his hometown of Hooks, Texas, there is a city road named Billy Sims Road and the local library wall is adorned with his photos. Sims maintains 44 Billy Sims Barbecue restaurants franchises with co-founder Jeff Jackson.