Based on the tune of ‘Waltzing Matilda' and the legendary myth of the bunyip, the film portrays Australia's distinct outback environment and characters using a unique style of stop-motion animation. The original poem was written by Elisabeth Edser, as a parody of the Australian ballad 'Waltzing Matilda', but developed into an entirely different script, with a meaningful environmental message. The original poem was significantly changed to suit animation production.

The Bushman of Bunyip Billabong tells the tale of a careless swagman, who learns his lesson for disrespecting the environment. The Swagman arrives at a waterhole and describes the place as a "dump", in his typically 'Aussie' accent. He then begins a whole series of environmentally damaging acts including littering and blasting his stereo at full volume to disturb all the native wildlife, especially the "bloody maggies" (magpies). He even ends up shooting some defenceless kangaroos.

But his presence didn't go unnoticed by the resident Bunyip. The hideous creature, based on an ancient Aboriginal myth, rises from the waterhole, seizes the swagman and drags him into the water. The legendary tale finishes with the narrator saying, "His ghost may be heard as you pass by the billabong..." before the Swagman rises as a ghost out of the waterhole and delivers the films environmental message.