Born in Detroit, Michigan, LaBute was raised in Spokane, Washington. He studied theater at Brigham Young University (BYU), where he joined the Church of Jesus Christ of Latter-day Saints. At BYU, he also met actor Aaron Eckhart, who would play leading roles in many of his films. At BYU, he produced a number of plays that pushed the envelope of what was allowable at the strait-laced Latter-day Saint university, some of which were immediately shut down after their premieres. LaBute also did graduate work at the University of Kansas, New York University, and the Royal Academy of London.

In 1993, he returned to Brigham Young University to premier his play In the Company of Men, for which he received an award from the Association for Mormon Letters. Afterward, he taught drama and film at IPFW in Fort Wayne, Indiana in the early 1990s where he adapted and filmed the play, launching his career as a film director. The film won the Filmmakers Trophy at the Sundance Film Festival, and major awards or nominations at the Deauville Film Festival, the Independent Spirit Awards, the Thessaloniki Film Festival, as well as from the Society of Texas Film Critics Awards and the New York Film Critics Circle. It also resulted in his disfellowship (the precursor to excommunication) from the LDS Church by disapproving local ecclesiastical leaders. (He has since formally left the church. )

LaBute has received high praise from critics for his edgy and often unsettling portrayals of human relationships. In the Company of Men portrays two misogynistic businessmen (one played by Eckhart) cruelly plotting to romance, and then emotionally destroy, a deaf woman. His next film, Your Friends & Neighbors (1998), with an ensemble cast including Eckhart and Ben Stiller, was a shockingly honest portrayal of the sex lives of three suburban couples who were friends. In 2000, he wrote and directed an off-Broadway play entitled Bash: Latter-Day Plays, a set of three short plays depicting essentially good people (who happen to be Latter-day Saints) doing disturbing and violent things. One of the plays was a much-talked-about one-person performance by Calista Flockhart.

LaBute's 2002 play, The Mercy Seat, was one of the first major theatrical responses to the September 11, 2001 attacks. Set on September 12, it concerns a man who worked at the World Trade Center, but was away from the office during the attack - with his mistress. (The play was reportedly inspired by an urban legend along these lines.) Knowing that his family probably believes that he was killed in the towers' collapse, he contemplates the possibility of using the tragedy to run away from his wife and children and start a new life with his lover. Starring Liev Schreiber and Sigourney Weaver, the play was a considerable commercial and critical success, in large part because of its willingness to confront the myths that many New Yorkers had constructed in order to console themselves after the attacks.