Barty was born in Millsboro, Pennsylvania. He was one of the most famous 20th century people with dwarfism, having prominent roles in popular movies such as Foul Play, The Lord of the Rings (both 1978), Under the Rainbow (1981), Masters of the Universe (1987), Willow (1988) and UHF (1989). Because of his stature, most of his work consisted of bit parts and gag roles. Barty was known for his boundless energy and enthusiasm for any productions in which he appeared.

Barty was a noted activist for the promotion of rights for others with dwarfism. He was disappointed with contemporary Hervé Villechaize's insistence that they were "midgets" instead of actors with dwarfism. Barty founded the Little People of America to help with his activism.

Barty was married to his wife, Shirley Bolingbroke of Malad City, Idaho, from 1950 until his death at age 76. They had two children, Braden and Lori.

Barty and his family belonged to The Church of Jesus Christ of Latter-day Saints (aka the Mormons).

A recent tribute book on his life was published in December 2002. Within Reach: An Inspirational Journey into the Life, Legacy and Influence of Billy Barty was produced by Barty's nephew, Michael Copeland, and Michael's wife, Debra.