Butenandt, who was born at Bremerhaven-Lehe (now Wesermünde) in Germany, took his first degree in chemistry at the University of Marburg and gained his doctorate in 1927 under Adolf Windaus at Göttingen. He remained at Göttingen as Privatdozent until 1933. Following the work of Windaus on cholesterol, Butenandt investigated the sex hormones and in 1929 he isolated the first pure sex hormone, estrone, from the urine of pregnant women (the compound was also discovered independently by Edward Doisy). A search for the male sex hormone resulted in the isolation in 1931 of 15 milligrams of androsterone from 3960 gallons of urine.

In 1933 he became professor of organic chemistry at the Danzig Institute of Technology and here he demonstrated the similarities between the molecular structures of androsterone and cholesterol. His proposed structure for androsterone was confirmed by Leopold Ružička's synthesis in 1934. The male hormone testosterone was synthesized by Butenandt and Ružička only months after its isolation in 1935. Butenandt and Ružička were jointly awarded the Nobel Prize for chemistry in 1939 but Butenandt was forbidden to accept it by the Nazi government. Butenandt was also the first to crystallize an insect hormone, ecdysone, and found that this too was a derivative of cholesterol. Later he led research on the isolation and synthesis of the pheromones.

From 1936 to 1945 Butenandt was director of the Max Planck Institute for Biochemistry at Tübingen and from 1945 to 1956 professor of physiological chemistry there. He retained these posts when the institute moved to Munich in 1956, and in 1960 he succeeded Otto Hahn as president of the Max Planck Society, becoming honorary president in 1972.