Matthews resigned at the onset of the Civil War in 1861 and served as a colonel in the Ohio Volunteers under his college friend, Rutherford B. Hayes, the future U.S. president.  In 1863, Matthews returned to his private law practice and was soon appointed to the Cincinnati Superior Court (1863-1864).  He ran unsuccessfully as the Republican candidate for Congress in 1876.  When the presidential election of that year ended with disputed Electoral College returns, Hayes, the Republican nominee, tapped Matthews as one of his counsel before the Electoral College Commission.  After President Hayes appointed Senator John Sherman to head the Treasury Department, the Ohio legislature elected Matthews to complete Sherman's senate term (1877-1879).  Matthews did not seek reelection in 1878, but resumed his legal practice.  

In January 1881, President Hayes, by then a lame duck, nominated his Ohio friend to fill the Supreme Court vacancy created by Justice Noah Swayne's retirement.  The Senate, however, refused to consider the nomination.  In March 1881, the new president, James Garfield (another Ohioan), sent Matthews's name back to the Senate.  On May 12, 1881, after bitter debate, the Senate confirmed his appointment 24-23.  The opposition to Matthews's Supreme Court appointment (and to his earlier Congressional candidacy) stemmed from his prosecution in 1859 of a newspaper editor who had assisted two runaway slaves.  As a professed abolitionist at the time, the case was later framed as political expediency triumphing over moral principle.

Matthews's tenure as Supreme Court justice was cut short by his death in 1889, but in his seven years on the high bench he authored a large number of opinions (232) and five dissents.  He is remembered for two decisions that still serve as precedent today.  In Hurtado v. California (1884), Matthews's majority opinion declared that states do not need grand jury indictments or presentments in order to prosecute felonies, sufficient notice to prepare a legal defense is enough to meet the due process requirements of the Fifth and Fourteenth Amendments.  In Yick Wo v. Hopkins (1886), Matthews's majority opinion set the standard used today in civil rights cases dealing with disparate impact.  He ignored the neutral language of San Francisco's regulation of public laundries, and relied on statistics showing the ordinance's larger negative impact on Chinese residents who owned most of the laundries.  The decision ruled that the regulation violated the Equal Protection Clause of the Fourteenth Amendment.

Yet in three other cases, Matthews took a very different position from his expansive view of the Constitution in Yick Wo.  In 1883, he was part of the 8-1 majority that overturned the Civil Rights Act of 1875 as unconstitutional.  The law had banned racial discrimination in public accommodations, including hotels, restaurants, theaters, and public transportation.  The absence of such federal protection facilitated racial segregation across the American South.  Also in 1883, Matthews delivered the majority opinion in Ex parte Crow Dog, in which he declared that the federal government had no jurisdiction over crimes committed on Indian reservations.  Two years later Congress granted territorial courts such authority, which the Supreme Court later upheld.  In 1884, Matthews authored the majority opinion in Elk v. Wilkins, which argued that American Indians who left the reservation were not citizens under the Fourteenth Amendment and therefore did not have voting rights.