Butts was born in Poole, Dorset. Her father died in 1904, after which she had a boarding school education in St Andrews. She studied at Westfield College, but did not complete a degree there. In the first years of World War I she was living in London, England, undertaking social work for the London County Council in Hackney Wick, and in a lesbian relationship. She then met modernist poet John Rodker, whom she was to marry, at that time hiding in Dorking with fellow poet Robert Trevelyan.

During the early 1920s Butts was mostly in Paris, France. She was friends there with artist, poet, and film-maker Jean Cocteau, who illustrated her book Imaginary Letters. Her first novel, Ashe of Rings (1925), was published by Robert McAlmon.

Butts spent about twelve weeks in mid-1921 at Aleister Crowley's Abbey of Thelema in Sicily; she found the practices there shocking, and came away with a drug habit. In 1922 and 1923 she with Cecil Maitland spent periods near Tyneham, Dorset, and her novels of the 1920s make much of the Dorset landscape. She settled in Cornwall in 1932.

In 1918 she married John Rodker, and gave birth to a daughter, Camilla. They divorced in 1927, Butts having much earlier left Rodker for a relationship with Cecil Maitland. In 1930 she married William Park "Gabriel" Atkin (1897-1937), a homosexual artist. After time in London and Newcastle, they moved to Sennen in Cornwall, but the marriage had failed by 1934.

Butts' papers are held at the Beinecke Library at Yale University. Her biography, by N. Blondel, appeared in 1998.