Fetterman was probably born in New London, Connecticut, although there is some uncertainty. His father was a career Army officer of Pennsylvania German ancestry. Fetterman enlisted in the Union army in Delaware in May 1861 and was promptly commissioned a first lieutenant. He served with the First Battalion of the US 18th Infantry Regiment throughout the Civil War and was twice brevetted for gallant conduct, finishing the war a lieutenant colonel of Volunteers. After the war, he chose to remain in the Regular Army and was assigned as a captain in the Second Battalion of the 18th Infantry Regiment. In November 1866, the regiment was stationed at Fort Phil Kearny, tasked with protecting immigrants traveling to the gold fields of Montana Territory along the Bozeman Trail.
Fetterman allegedly boasted that with 80 soldiers, he could "ride through the Sioux Nation." On December 21, 1866, a large band of Cheyenne and Sioux, including Crazy Horse, under Red Cloud attacked a wood train near the fort. Despite his unfamiliarity with frontier conditions and methods of Indian fighting, Fetterman took command of a composite reaction force consisting of the former battalion quartermaster, Captain Frederick Brown, 2nd Lt. George Grummond, 49 enlisted troops of the 18th Infantry, 27 men of the 2nd Cavalry, and 2 civilian scouts, ironically totaling 80 men. Ignoring his orders not to venture beyond Lodge Trail Ridge (out of sight and support distance from the fort), Fetterman pursued a small band of Sioux and was lured into an ambush. He found himself facing approximately 2,000 Indians. Within 20 minutes, Fetterman and his command had been wiped out.
The Fetterman Massacre, as the encounter became known, was second in notoriety only to Custer's disastrous defeat in 1876. It led to the dismissal of Fetterman's commanding officer, Henry B. Carrington, who was initially blamed for the disaster, but was eventually exonerated.
Fetterman's grave is in the National Cemetery at the Little Bighorn Battlefield National Monument. He had never married and left no heirs. His pension was sent to his mother.