Butler was born at Eagle's Crag near Greenville, South Carolina, to a large and prominent family of politicians and military men. His grandfather was U.S. Congressman William Butler. His mother, Jane Tweedy Perry of Rhode Island, was the sister of Commodore Oliver Hazard Perry and Matthew Calbraith Perry, for whom Matthew Calbraith Butler is named. His father, William Butler, Jr., was a Congressman beginning in 1841.
His uncle Andrew Butler was a U.S. Senator from South Carolina and uncle Pierce Mason Butler was Governor of South Carolina. One of Matthew Butler's first cousins was Congressman Preston Brooks, who assaulted Senator Charles Sumner in 1856 on the floor of the U.S. Senate with a cane. He said it was because Sumner had insulted Senator Andrew Butler, at whose home Matthew lived as a young man. Two of Butler's first cousins twice removed were James Bonham (killed at the Battle of the Alamo) and Confederate General Milledge Luke Bonham.
In 1848 Butler went with his father to Arkansas, but returned in 1851 to live with his uncle, who resided in Edgefield, South Carolina. He received his initial education in the city's Edgefield Academy, and then attended the South Carolina College, graduating in 1856. He studied law, was admitted to the state's bar association in 1857, and began practicing as a lawyer in Edgefield. He was elected to the South Carolina House of Representatives in 1860, but resigned in 1861 when the American Civil War began.
On February 25, 1858, Butler married Maria Calhoun Pickens. She was the daughter of Francis Wilkinson Pickens, who was elected as governor of the state.
During the Civil War, Butler served in the cavalry in the Confederate Army of Northern Virginia, serving in Hampton's Legion, attaining the rank of captain on June 12, 1861 and then Major on July 21, 1861. When the legion's cavalry battalion was consolidated with the 4th South Carolina Battalion and became the 2nd South Carolina Cavalry Regiment on August 22, 1862, Butler was elected its colonel. Participating in many major actions with Hampton's Legion and the 2nd SC Cavalry, Butler lost his right foot to rifle fire at Battle of Brandy Station. He attained the rank of brigadier general in February 1864, and was referred to as "General Butler" in the postwar period.
Butler led a brigade in Wade Hampton's division of the Cavalry Corps. When Hampton took command of that corps, Butler became division commander. Late in the war, he transferred to the Carolinas together with Lt. Gen. Hampton, leading a division at the Battle of Bentonville. General Butler was wounded again in that action.
Financially ruined as a result of the war, Butler resumed his career as a lawyer in Edgefield. He was elected to the South Carolina House of Representatives beginning in 1866. He became a member of the Democratic Party and ran unsuccessfully for lieutenant governor in 1870 during the Reconstruction era.
In July 1876, Butler defended two white farmers in court in their complaint of being denied free passage on Main Street of Hamburg, South Carolina, when the local chapter of the black militia, part of the National Guard, was parading on Independence Day. In court Butler demanded that militia members turn over their arms to him, which they refused. Hundreds of white paramilitary members came to town and attacked the armory, where the militia company had taken refuge. They killed two freedmen on the street, including the town marshal, and later murdered five freedmen they had taken prisoner. One white man had been killed in early gunfire (see Hamburg massacre).
In 1877, after Federal troops had been withdrawn under a national Democratic compromise, Reconstruction ended. The Democratic Party regained control of the state in the 1876 elections. The South Carolina state legislature elected Butler to the United States Senate. During Senate hearings on his election, Butler was accused by Edgefield African-American leader, Harrison N. Bouey of threatening to kill him and other local men. He served in the U.S. Senate for three terms, from 1877 to 1895, but lost the Democratic primary in 1894 to Benjamin Tillman, who was popular after having been governor.
While in the Senate, Butler served on the Senate Foreign Relations, Territories, Military Affairs, Naval Affairs, Interstate Commerce, Civil Service and Retrenchment committees.
Butler practiced law in Washington, D.C., until 1898, when he was appointed major general of U.S. Volunteers during the Spanish–American War. He was one of a handful of former Confederate officers (along with Fitzhugh Lee, Thomas L. Rosser, and Joseph Wheeler) to serve in the U.S. Army during that war. After the American victory that year, he supervised the evacuation of Spanish troops from Cuba. He was honorably discharged from the U.S. Army on April 15, 1899. In 1899 General Butler joined the Pennsylvania Commandery of the Military Order of Foreign Wars.
In 1903, Butler was elected vice president of the Southern Historical Society. In 1904 he relocated to Mexico, where he served as president of a mining company. Having been a widower for years since his wife Maria died, in 1906 he married Nannie Whitman.
They returned to Washington, DC. Butler died there in 1909 while semi-retired. His body was returned to Edgefield, South Carolina, where he was buried in the city's Willow Brook Cemetery.
The Matthew C. Butler Camp #12 of the South Carolina Society of the Military Order of the Stars and Bars is named in his honor.