Bully is a sandbox game set in a school environment. The player takes control of teenage rebel Jimmy Hopkins, who from the opening cutscene is revealed to be a difficult student with a criminal background. The game concerns the events that follow Jimmy being dropped off at Bullworth Academy, a fictional New England boarding school. The player is free to explore the school campus in the beginning and later on in the game the town, or to complete the main missions. The game makes extensive use of minigames. Some are used to earn money, others to improve Jimmy's abilities or get new items.

School classes themselves are done in the form of minigames, broken into five levels of increasing difficulty. English, for example, is a word scramble minigame, and as Jimmy does well in this minigame, he learns various language-skills, such as the ability to apologize to police for small crimes.

Jimmy Hopkins has a multitude of weapons available, although they tend to run along the lines of things a school boy might actually attain, such as a slingshot, bags of marbles, itching powder, fire crackers, stink bombs, and later in the game, a bottle rocket launcher and the spud cannon, a firearm that launches potatoes. Although fighting is an integral part of the game, violence against girls, smaller kids, or authority figures generally has swift and severe consequences.

Jimmy also has an assortment of vehicles to operate — mainly a skateboard, but also a scooter, a go-kart, a lawn mower (for money, and also to complete a detention and, towards the end of the game, some missions), and various bicycles. By passing shop classes, Jimmy can build increasingly high-performance BMX bikes, and use them in either races or a bike park. The player can also alter Jimmy's physical appearance to his/her liking by purchasing new clothes, haircuts, or even tattoos.