Matawai had its beginnings soon after 1900 as the district was settled, the bush cleared and farms established. Matawai did not warrant an entry in the 1905 New Zealand Post Office Directory, with residents being listed under the Rakauroa entry. On 29 September 1908 the Motu Valley Settlers' Association was formed in Matawai with the following members: C Buscke, H Bulst, J Johnstone, H Korte, J J Marshall, J E Haisman, W Baird, J Bryant, C Simpson, J Pigott, M Doyle and H Riddick. Matawai School opened in 1908 and the Matawai Public Hall in 1910.

The township of Matawai came into existence in 1912 as the railway from Gisborne to Motu was being constructed. The route of the railway and land for the Matawai railway station had been selected.

Sections for the Matawai township were surveyed and made available for sale in 1912. The Poverty Bay Herald reported the planned auction of sections on 21 June 1912 (see below). The subdivision was 58 acres with sections ranging from a quarter to nine acres in area. Over a hundred sections were sold in the auction on 22 June 1912. A further 32 sections adjoining the railway station were sold by Hensen and Green on 12 July 1912.

To-morrow, at 1 p.m., Messrs Williams and Kettle, Ltd., offer for sale at Barlow's garage, on behalf of Mrs E. A. Mortleman, sections in the township of Matawai. These sections offer special inducement to investors and others by reason of the fact that Matawai must in the near future be a prosperous and flourishing township. Apart from certain railway advantages likely to accrue to this township on account of its position, there are the vast timber forests in the locality, which are now being actively milled; the timber from which, must come to Matawai as its outlet. For dairying purposes the land in the neighborhood is unsurpassed, and there is no doubt that this will soon be one of the flourishing industries.

In January 1913 the township was starting to develop. Four railway cottages had been built and excavation of the railway yard was completed. Matawai was on the fringe of the remaining timber country and sawmills were operating (F, Halls, Drummond Brothers., Sloan Brothers) or preparing to open (McLeod Brother). A further three mills were planned. It was estimated that 25,000 feet of timber per day would be produced from the first four mills (approx 60 cubic meters of sawn timber per day). The township had two stores and a number of scattered buildings. The site for a new schoolhouse had been excavated in readiness for building. The Settlers' Saleyard Company had secured a site for their stock yards adjoining the railway station. A site was offered for a new Post Office.

Dairy farming became established in the district once the railway began operating. Dairy farmers separated cream from the milk and sent cream to Gisborne for butter making. The skim milk was fed to pigs. Following the closure of the railway in 1958 dairy farming ceased in the district. Dairy farming made a return to the district in 2009 with milk being transported by road out of the district for processing.

Sheep and beef cattle farming became the main type of agriculture in the Matawai district. The volcanic soils of the district require regular application of fertilisers to maintain pasture and livestock production. Numerous airstrips were established in the district during 1950-1960 for aerial application of fertilisers.

The Gisborne to Motu Railway was part of the proposed railway from Gisborne to Auckland. The railway had been proposed since 1886, but it was only local agitation in 1897 that began to get the project moving.

The "first sod" of the railway was turned by Sir Joseph Ward (the Minister of Railways) on 14 February 1900. The railway from Gisborne reached Ormond in 1902, Te Karaka in 1907, Waikohu in 1908, Otoko in 1912 and Matawai on 1913. After the railway line reached Matawai in April 1913, the Public Works Department provided limited train services from May 1913 until 30 October 1914 when the station and completed works were handed over to the Railways Department. The final five mile (8 km) section of the railway from Matawai to Motuhora (renamed Moutohora in 1952) was opened on 26 November 1917. The 49 mile (80 km) line cost 627,000 pounds. Extension of the line to the Bay of Plenty never eventuated.

The rail journey from Matawai to Gisborne took approximately three hours and the return journey four hours. The train typically consisted of an engine, two passenger carriages,  numerous trucks and a guards van. Two trains up and two trains down per day was the usual between Motuhora and Gisborne for many years. 

The line began operating at a profit transporting passengers, sheep, cattle, timber, road metal and general freight. It was reported in 1917 that the five sawmills operating in the district cut 5,740,000 superficial feet (approx 13,500 cubic meters) the previous year, mainly rimu (59%) and white pine (37%). Most of this timber was transported out of the district by the railway.

Passenger services ceased in 1945 as NZR Road Services buses began to offer alternative transport. Competition from road transport caused the line to start losing money by 1952. Maintenance was suspended and the line closed in March 1959. The railway was taken up and station buildings and bridges sold.

Following closure of the railway, the Matawai to Gisborne road was upgraded and tar sealed. The road was realigned and in several places the realignment used the former railway route.

The former Matawai railway station is on the Motu road, about 1 km from the Matawai Hotel.

Matawai School opened in 1908 in temporary accommodation. The school moved to Matawai Public Hall in 1912 to accommodate the increasing number of pupils. On 15 September 1913 the school moved to the present site with completion of school rooms to accommodate about 100 pupils. Two further classrooms and a staff room in an additional building were opened in November 1955. Following closure of the Motuhora School, the school building with two classrooms was moved to Matawai School.

Several other local schools closed as their rolls fell and children were bused to Matawai: Homebrooke School closed about 1948, Koranga School closed in 1951, Rakauroa School closed at the end of 1945, Keretu School closed in 1938, Otoko School closed in 1997 and Wairata School closed in 2001.

In October 1958 the school had a roll of 203 children. In 2008 the roll was over 70 children and nine staff.

The Matawai School has held regular celebrations of the 1908 opening. The Jubilee Booklet from the 1958 celebration can be downloaded or seen on a separate page.

The Matawai Hotel was originally part of a larger hotel at Motu. A third of the Motu Hotel as moved to Matawai about 1933, and the remainder was moved to Ormond near Gisborne. The Hotel was moved because business in Motu had declined as a result of the railway construction and the opening of the road from Matawai to Opotiki through the Waioeka Gorge. Earlier in the century, the main road from Gisborne to the Bay of Plenty had been through Motu.

The Hotel has seven upstairs rooms, five single and two double, an annexe that sleeps four, seven drovers cottages and three bedroom owners accommodation. There is also a public bar, a kitchen, a large dining room and a number of ancillary rooms that can be used for small functions or for an overflow of late night guests.

The Matawai Post Office, across the road from the hotel, was built in 1920, with Mr E W Emmerson of Matawai securing the building contract. The building had accommodation for the Post Master behind the office. When an automatic exchange replaced the manual telephone exchange in the 1960s, the exchange was housed in a new building beside the Post Office.

The Post Office performed a wide variety of functions on behalf of the Crown, including the provision of postal, telegraphic, telephone and banking services. In addition the Post Office assisted in the administration of associated functions in other areas of government, for instance, pension payments, motor vehicle registration and radio inspection. Matawai Post Office acted as a births, deaths and marriage registration office from 1916.

The Post Office is now closed and used as a residence.

St Mary's Matawai Anglican Church was opened on 21 March 1917 by Archdeacon Williams. The organ was donated by Mr T Williams of Tuparoa. The architect was F de J Clere of Wellington and the building contractor Mr E W Emmerson of Matawai. The rimu furniture was made by the building contractor from local timber. The church is part of Waikohu Parish with the vicar from Te Karaka conducting church services.