Reuter was born in Guben into a Prussian military family. His father, a colonel in the Prussian army, died during the Franco-Prussian War of 1870. In 1885, he became a cadet in the Imperial German Navy at the instigation of his mother.
A midshipman at the age of 17, he was promoted to Unterleutnant zur See (sub-lieutenant at sea) in 1888. By 1910, he was a Kapitän zur See (captain at sea), commanding the heavy cruiser SMS Yorck.
Two months after the outbreak of World War I, he was made captain of the battlecruiser SMS Derfflinger, which he also commanded during the Battle of Dogger Bank. In September 1915, he became Commodore and commanding officer of the Second Scouting Group of five light cruisers (SMS Stuttgart, SMS Hamburg, SMS München, SMS Stettin, SMS Frauenlob), leading the group during the Battle of Jutland. Promoted to Konteradmiral in November 1916, he was placed in command of the Fourth Reconnaissance Group, a fleet of six light cruisers including his flagship SMS Königsberg. He commanded the group during the mine sweeping operation that led to the Second Battle of Heligoland Bight in November 1917. Faced with a surprise attack by a numerically superior force of British ships, he successfully withdrew his group under fire to the protection of the battleships SMS Kaiser and SMS Kaiserin.
After the armistice that ended World War I, Konteradmiral von Reuter was requested to take command of the fleet that was to be interned at Scapa Flow until its final disposition would be decided at Versailles. Admiral Franz von Hipper, commander-in-chief of the High Seas Fleet, had refused to lead his ships into internment.
As the final deadline neared for the German delegation to sign the Treaty of Versailles, von Reuter anticipated that his ships would be handed over to the victorious Allies. To prevent this, he ordered all 74 ships scuttled on 21 June 1919, using an unusual flag signal previously agreed upon. Unknown to the British, all ships had long ago been prepared for this action. Within five hours, 10 battleships, five battlecruisers, four light cruisers, and 32 torpedo boats sank in Scapa Flow. The battleship SMS Baden, the four light cruisers SMS Emden, SMS Nürnberg, SMS Frankfurt and SMS Bremse and 14 torpedo boats were beached when British watch personnel were able to intervene in time and tow them to shallow water. Only four destroyers remained afloat. Nine Germans were killed in scuffles aboard some of the ships (including Walter Schumann, the captain of SMS Markgraf) – the last German war deaths of World War I.
Reuter was vilified in Britain and made a prisoner of war, along with the other 1,773 officers and men of the fleet's remaining rump crews. In Germany he was celebrated as a hero who had protected the honor of the navy. While most of the imprisoned Germans were soon returned to Germany, Reuter was among several who remained imprisoned in Britain. He was eventually released and finally returned to Germany in late January 1920.
Five months after his return from Britain, Reuter was requested to hand in his resignation from the navy. The Treaty of Versailles forced Germany to drastically reduce the size of its navy leaving Reuter without a suitable command, given his rank and age. Moving to Potsdam, he eventually became a State Councillor. He also wrote a book on the scuttling of the High Fleet, Scapa Flow: Grave of the German Fleet. On 29 August 1939, he was made full Admiral to celebrate the 25th anniversary of the Battle of Tannenberg. Reuter died in Potsdam of a heart attack on 18 December 1943.