Thompson went back to Austin, where he worked at the Southern Intelligencer office where he had worked before. He also gambled. When he discovered his skill at cards, he quit his day job. A gambler accused Thompson of cheating and challenged him to a gunfight. Thompson won that one too.
When the Civil War started, Thompson joined the cavalry in San Antonio. While there, he killed a sergeant and a lieutenant in a brawl. He escaped from jail and then signed up with another unit. He fought at the Battle of LaFourche Crossing in 1863. He later deserted the army. He and his brother spent the next two years gambling in Laredo and Nuevo Laredo. While on leave, he married Catherine Moore.
The law caught up with him and his brother in Austin, where they were charged with killing a man named Coombs. After waiting several months in jail, he escaped and fled south of the border where he accepted a lieutenant's position in the Mexican Emperor Maximilian's army. In June 1867, Maximilian was captured by Jaurez and executed by a firing squad. Thompson had to escape back to the United States. When he arrived in Austin, he and his brother were immediately re-arrested. He was acquitted of that charge. But in June 1868 he was arrested on an assault with intent to kill charge. he was found guilty and sentenced to two years at Huntsville Prison.
After his release, he joined his bother Bill in Kansas. He and friend and fellow gambler Phil Coe then opened up Bull's Head Tavern and Gambling Saloon at Abilene. There was some disagreement over the sign that the two had erected. The townspeople did not like that cow depicted had certain exaggerated details. Wild Bill Hickok was the sheriff at the time. He didn't particularly care about the sign, but as sheriff he had to respond to the concerns of the citizens. on October 5, 1871, he was involved in a shootout with Coe while Thompson was in Kansas City. He shot and killed him. Thompson threatened Wild Bill, but never accosted him.
In June 1873, he and his brother went to Ellsworth, Kansas, another cow town. He opened another successful gambling den there. On August 18, 1873, he got into a dispute with gambler Jack Sterling. Deputy Sherriffs Jack Morco and Edward Hogue prevented any damage. But later that day, the Thompson brothers went after Sterling and Morco. Sheriff Chauncey B. Whitney talked Thompson out of any violence and offered to drink on it. Just as the three men were going into a saloon, Morco and Sterling crept up behind them with guns drawn. In the confusion, Billy Thompson accidently killed Whitney. Thompson held them off while Billy rode away.
Thompson went back to Texas and opened several gambling halls in cow towns and mining camps. Soon after, he was involved in a dispute between the Atchison, Topeka, & Santa Fe railroad and the Denver & Rio Grande railroad. He was hired by the AT&SF to help protect their property. He made $2,300 and several diamonds on the deal.
In 1880, he ran for Marshall of Austin. Before the election, he was involved in a shooting at Mark Wilson's Senate Saloon and Variety Theater. Wilson had been about to throw him out when Thompson killed him with four shots. When a bartender tried to help, he got shot and later died of his wound. When Thompson was brought before the court for the two deaths, he was acquitted. The theory was that if they "sucked up" to him, then he would leave them alone.
Incredibly they town elected him Marshall. The town was pretty quiet during his tenure, and not one murder was committed. He resigned in 1882, after killing an old enemy Jack Harris, in San Antonio. He was taken to trial for it, but the jury declared it was self-defense and released him in January 1883. The trial attracted a lot of attention nation-wide. So when Thompson returned to Austin, large crowds were on hand to greet him at the depot. That same year he also hired a savvy lawyer how got his brother Bill off for a charge of murder.
He tried to go back to his old business of gambling houses, but business had fallen off. He began to get depressed and suffered from insomnia. He got drunk often. One time he attended a play and stood up and started shooting at the villain of the story. Only blanks were in his gun. He would also go into the newspaper office and shoot up the type cases. Gradually sentiment turned against him.
The end came on March 10, 1884, in San Antonio. Thompson and fellow gunslinger J. King Fisher went to the Vaudville Theater, a theater, gambling hall, and saloon. Historians wonder why he agreed to go in there since Joe Foster, part owner of the theater, was the partner of Jack Harris, the man Thompson had killed. Thompson and Fisher had already had several drinks when they went in. After sitting down with policeman Jacob S. Coy and co-owner Billy Simms, Thompson demanded to talk to Foster. When Simms brought Foster to the table, he refused to shake hands with Thompson. Guns were drawn and before the smoke cleared, Thompson and Fisher were dead, Foster was seriously wounded, and Coy was shot in the foot. There were nine bullets in Thompson's body. Foster latere died from his wound.
There was a trial that concluded that officers shot the two in self-defense. Other stories surfaced that hired gunmen shot them. Two eye-witnesses, Alex T. Raymond and John R. Sublett supported this story, stating that the two gunmen had not yet drawn their guns before they were fired at. Autopsies also showed that the bullets had been fired from a theater box above their table. No one was ever charged for their murder. He left behind a wife, a son, a daughter, and his brother Bill.