Martin was born to a father of Portuguese descent and a mother of Italian ancestry, who separated after Martin was born. Martin was raised by his mother, who doted on her son, frequently calling him "bella," or "beautiful" in Italian. This was the origin of his nickname "Billy." Martin signed a minor league contract with the Oakland Oaks of the Pacific Coast League, playing for that team in 1948 and 1949.

He started his major league career in 1950 as a second baseman for the Yankees. He was the MVP of the 1953 World Series, and retired in 1961 with a career batting average of .257. As a player, Martin was known for making clutch plays and partying hard. The Yankees traded him in 1957, a month after a group of Yankees met at the Copacabana to celebrate Martin's 29th birthday. The party ended in a brawl, and general manager George Weiss, believing Martin's nightlife was a bad influence on teammates Whitey Ford and Mickey Mantle, sent him to the Kansas City Athletics. On August 4, 1960, Martin, then playing for the Cincinnati Reds, charged the mound in the second inning after receiving a brushback pitch from Chicago Cubs pitcher Jim Brewer. Martin threw his bat at Brewer, who picked up the bat and started to hand it to Martin as he approached. Martin punched Brewer in the right eye. Brewer was hospitalized for two months and Martin served a five-day suspension. The Cubs sued Martin for $1 million for the loss of Brewer's services. While the Cubs dropped their case, Brewer pursued his, and in 1969, a judge ordered Martin to pay $10,000 in damages.

In 1969, Martin became manager of the Minnesota Twins and won a division championship in his first season. He was fired after the season following a fight with one of his pitchers. He managed the Detroit Tigers from 1971 to 1973, and was fired in 1973 for ordering his pitchers to throw at batters. He then moved to the Texas Rangers, where he took the club from last place to second place in 1974, but was fired in 1975.

He returned to the Yankees for the first of his managerial stints in 1975, and took the Yankees to the World Series in 1976 and 1977, winning the 1977 World Series. He feuded publicly with both Yankee owner George Steinbrenner and star outfielder Reggie Jackson. He briefly resigned in 1978 after telling reporters, "They deserve each other. One's a born liar [Jackson], and the other's convicted [Steinbrenner]." He returned in 1979, only to be fired after a fight with a marshmallow salesman.