Townley was born in Waterloo, Iowa.
According to head of DINA Manuel Contreras, Townley returned to Chile at the end of 1973, working for the CIA, with the intent of receiving from the "Highest National Authority, in agreement with what had already been planned by the CIA ... the order to act in direct, personal and exclusive form, without intermediaries, against General Prats in Buenos Aires". Prats and his wife were killed with a car bomb in Buenos Aires, Argentina, in 1974. Contreras also said that Townley traveled with a false passport provided by the CIA under the name of Kenneth Enyart. Contreras stated Townley was aided by CIA agents, as well as Argentine and Chilean agents, and paramilitary groups such as the Triple A and the Grupo Milicias. Contreras said he thought the CIA planned the assassination because it feared Prats would try to overthrow Pinochet's dictatorship with the help of the Argentine Army, thus leading to a war between Chile and Argentina which would constitute "a difficult problem for the United States in the Cold War era".
He was convicted and sentenced in absentia in Italy to 15 years of jail, due to his role as an intermediary between the Chilean DINA and Italian neo-fascists.
Michael Townley also stated that Enrique Arancibia had traveled to California in the autumn of 1977 on banking business for ALFA, alias Stefano Delle Chiaie. Enrique Arancibia is a former DINA agent who resided in unofficial exile in Buenos Aires after the assassination of Chilean Army Chief of Staff René Schneider on October 25, 1970. Arancibia was arrested by Argentine intelligence officers shortly after the extradition of Townley to the US and charged with espionage.
Townley was convicted in the United States for the 1976 murder of Orlando Letelier in Washington, D.C. During his trial, he said that Augusto Pinochet was responsible for planning the murder. Head of DINA Manuel Contreras also stated that Pinochet planned the assassination of both Prats and Letelier. Townley served 62 months in prison for the murder.
Michael Townley confessed that he had hired five anti-Castrist Cuban exiles to booby-trap Letelier's car. According to Jean-Guy Allard, after consultations with the leadership of the anti-Castro Cuban organization CORU, including Luis Posada Carriles and Orlando Bosch, those elected to carry out the murder were Cuban-Americans José Dionisio Suárez, Virgilio Paz Romero, Alvin Ross Díaz, and brothers Guillermo and Ignacio Novo Sampoll. According to the Miami Herald, Luis Posada Carriles was also at this meeting, which decided on Letelier's death and also about the Cubana Flight 455 bombing.
Townley was the prosecution's chief witness at the trial for Ross and the Novo brothers.
In 1978, Chile agreed to extradite him to the USA, in order to reduce the tension resulting from Orlando Letelier's murder. He made an agreement with the US government on April 17, 1978, which required that he only provide information relevant to violations of US law or offenses committed in US jurisdiction. Based on that argument, he refused to provide any information concerning DINA during the trial of the three Cuban defendants in Washington DC in early 1979 concerning Letelier's assassination. Michael Townley was then freed under the federal Witness Protection Program. The United States is still waiting for Contreras and Pedro Espinoza Bravo to be extradited.
In an interview with authorities on October 20, 1981, Townley declared that Castro opponent Virgilio Paz Romero brought with him a Colt .45 caliber automatic pistol when he visited Chile in the spring of 1976. According to Townley, Romero said that the weapon had recently been used in a "hit" by the Cuban Nationalist Movement and that his purpose in Chile was to use it again. Townley then said that Romero had broken the weapon in pieces and scattered the pieces throughout Santiago.
In 2005, DINA chief Manuel Contreras also told the Chilean judge responsible for trying the case that Townley had been supported for Letelier's assassination by CIA agents, as well as the Cuban Nationalist Movement and members of the DISIP (for which Luis Posada Carriles worked). CIA deputy director from 1972 to 1976, General Vernon Walters, informed Pinochet that Letelier represented a threat for the US and was preparing a Chilean government in exile, according to Contreras. Contreras wrote in the document that "the Chilean President disposed in personal, exclusive and direct manner of the action of CIA agent Michael Townley against Mr. Orlando Letelier".
Contreras also stated that the CNI handed out monthly payments between 1978 and 1990 to the persons who had worked with Townley in Chile, all members of Patria y Libertad: Mariana Callejas (Townley's wife), Francisco Oyarzún, Gustavo Etchepare and Eugenio Berríos. Assassinated in 1995, Berríos worked with drug traffickers and DEA agents.
In 2003, Argentine Federal Judge Maria Servini de Cubria asked Chile for the extradition of Mariana Callejas, who was accused of Carlos Prats' murder. But, in July 2005, Chilean Judge Nibaldo Segura of the Court of Appeals stated that the case cannot proceed, arguing that Callejas was already being tried in Chile.
Questioned in March 2005 by Judge Alejandro Madrid about ex-Chilean Christian Democrat President Eduardo Frei Montalva's death, Michael Townley acknowledged links between Colonia Dignidad, led by ex-Nazi Paul Schäfer and DINA on one side and the Laboratorio de Guerra Bacteriológica del Ejército (Bacteriological War Army Laboratory) on the other. It is suspected the toxin that killed Frei Montalva in a Santa Maria clinic in 1982 was created there. This new laboratory in Colonia Dignidad would have been, according to him, the continuation of the laboratory the DINA had in Via Naranja de lo Curro where he worked with DINA biochemist Eugenio Berríos. Townley would also have testified on biological experiments made upon prisoners in Colonia Dignidad with the help of the two above mentioned laboratories.
In 1992, Townley testified that the Spanish diplomat Carmelo Soria, assassinated in 1976, had been detained at his home on Via Naranja in the sector of Lo Curro. There he was tortured and, since he did not speak, subjected to sarin gas (which had been re-invented by Berríos). Soria was then detained and tortured again in the Villa Grimaldi and his case was included in Spanish magistrate Baltasar Garzon's indictment of Pinochet. In May 2016, Chile's Supreme Court asked the United States to extradite Chilean Armando Fernandez Larios, Townley and Cuban Virgilio Paz, all three of whom were linked to the Sept. 21, 1976, car-boming murders in Washington, D.C. In November 2002, Soria's widow, Laura Gonzalez-Vera, along with the personal representative of Soria's estate, sued Townley seeking damages for Soria's torture and killing. When Townley defaulted, the district court entered a $7 million judgment against him. The Supreme Court unanimously ruled that the foreign ministry of Chile should file an extradition request to the United States for Michael Townley and Armando Fernandez Larios.
All three are wanted in Chile for the detention, torture, and killing of Spanish-Chilean citizen Carmelo Soria on July 14, 1976.
In 2011, an investigation was launched into the death of Pablo Neruda, partially on the strength of a statement from his driver that he was injected with a poison by a Dr. Price. Price's description matched that of Townley, and police examined this link while Neruda's body was exhumed and tested for possible toxins. On 8 November 2013, the test results were released, with head of Chile's medical legal service Patricio Bustos stating that "No relevant chemical substances have been found that could be linked to Mr. Neruda's death". However, Carroza said that he is waiting for the results of the last scientific test conducted in May (2015), which found that Neruda was infected with the Staphylococcus aureus bacterium, which can be highly toxic and result in death if modified.