His father, Arthur Lowe Percy, a grocer, was of sufficient means to send his son to Christ Church, Oxford, in 1746. He graduated in 1750 and proceeded M.A. in 1753. In the latter year he was appointed to the vicarage of Easton Maudit, Northamptonshire, and three years later was instituted to the rectory of Wilby in the same county, benefices which he retained until 1782. In 1759 he married Anne, daughter of Barton Gutterridge.
At Easton Maudit most of the literary work for which he is now remembered - including the Reliques - was completed. When his name became famous he was made domestic chaplain to the Duke and Duchess of Northumberland, and was tempted into the belief that he belonged to the illustrious house of Percy. Through his patron's influence he became Dean of Carlisle in 1778 and Bishop of Dromore in Ireland in 1782.
His wife died before him in 1806; the good bishop, blind but otherwise in sound health, lived until the 30 September 1811. Both were buried in the transept which Percy added to Dromore Cathedral.
Dr Percy's first work was a translation from a Portuguese manuscript of a Chinese story, published in 1761. Two years later he published Five Pieces of Runic Poetry, translated from the Islandic. In 1763 he edited the earl of Surrey's poems with an essay on early blank verse, translated the Song of Solomon, and published a key to the New Testament.
His Northern Antiquities (1770) is a translation from the French of Paul Henri Mallet. His reprint of The Household Book of the Earl of Northumberland in 1512 is of the greatest value for the illustrations of domestic life in England at that period. But these works are of little estimation when compared with the Reliques of Ancient English Poetry (1765). This was based on an old manuscript collection of poetry, rescued by Percy in Humphrey Pitt's house at Shifnal, Shropshire, from the hands of the housemaid who was about to light the fire with it. The manuscript was edited in its complete form by JW Hales and FJ Furnivall in 1867-1868.