Labyorteaux was born in Los Angeles and adopted by interior designer and talent agent Ronald Labyorteaux (1930–1992) and Actress Frances Marshall (1927–2012). He is the younger brother of Patrick, also adopted and also an actor, and Jane. According to a biography about Matthew published by A&E Television Networks, "He was diagnosed as being autistic, and experts told his parents that Labyorteaux might never lead a normal life."

Aside from his tenure on Little House on the Prairie, Labyorteaux also starred in the short-lived television series The Red Hand Gang (1977) and Whiz Kids (1983–84), in addition to several made-for-television movies. His most prominent film role was in Wes Craven's Deadly Friend (1986) as Paul Conway, a young genius who resurrects a dead girl using an artificial intelligence microchip from a robot he created that had previously been destroyed by a malicious neighbor.

An article in People magazine from 1978 said he was thought to be fully autistic for the first five years of his life.

Labyorteaux is a skilled video game player. In October 1981, he finished in 10th place for Centipede at the Atari, Inc. world championships. In April 1982, he became the United States Pac-Man champion at a People-sponsored tournament, with a score of 1,200,000.

In 1992, Matthew and Patrick founded the Youth Rescue Fund (which was partnered with Los Angeles Youth Supportive Services), a charity organization that assists young people in crisis, and they have since engaged in fundraising for youth shelters across the U.S. The organization is no longer active.