Greathouse was born in Frederick County, Maryland, one of 11 children of Harmon and Mary Magdalena Stull Greathouse. The Greathouses moved from Maryland to Virginia about 1770 and Daniel owned of land at Mingo Bottom in Ohio County, Virginia. Daniel married Mary Morris, and they had two children, Gabriel and John.
In the early 1700s, the Ohio Valley was settled by a multi-cultural group of Indians called the Mingo. They lacked a central government and, like all other Indians within the region at that time, were subject to the control of the Iroquois Confederacy (comprised of the Seneca, Cayuga, Onondaga, Oneida, Mohawk, and Tuscarora tribes) headquartered in New York. The Mingo originally lived closer to the Atlantic Coast, but European settlement had pushed them into western Virginia and eastern Ohio. During the French and Indian War, the Mingo sided with the French. When the French lost and subsequently ceded their holdings to England, intensified settlement of the Ohio valley by their former enemies led to conflicts.
By 1774, tension between the settlers and the Indian tribes had increased; there had been killings on both sides. The rivalry between Pennsylvania and Virginia over the site of Pittsburgh increased these unsettled circumstances. Scouts returning to Fort Pitt reported that war was inevitable, and John Connolly sent word for settlers in outlying settlements to be on their guard for an attack.
Yellow Creek is a small tributary of the Ohio River located on the western (Ohio) bank about forty miles above Wheeling, Virginia (now West Virginia) and about west northwest of Fort Pitt (now Pittsburgh). Joshua Baker lived at the mouth of this creek and operated an inn or tavern of sorts, selling grog to both whites and Indians. Many of the inhabitants of the area had already evacuated, due to the warning sent by John Connolly. Baker was likewise preparing to leave when an Indian woman told him that Indians were preparing to murder him and his family. Baker got out word that he needed help.
Greathouse, leading a group of 21 men, came to his aid. The group reached Baker's on 30 April 1774 and were concealed by Baker in a back room. Seven Indians came across the river to Baker's place, including the brother of Chief Logan, a prominent warrior of the Mingo tribe, and two women and a child, also related to Logan. The Indians began to drink. When Logan's brother put on a hat and coat belonging to one of the settlers, the settler shot and killed him. Greathouse's men who had been concealed in the back room rushed out and killed all the remaining Indians except for the child. As they left the tavern, they saw two canoes of Indian men painted and armed for war, coming across the river. Greathouse's group fired on them, killing most of the occupants of one of the canoes; the others turned back. It was said that Greathouse took the scalps of his Indian foes and dangled them from his belt, scalping being a declaration of war among the Indians.
This massacre, following a series of incidents, was the final break in relations between the white settlers and the Indians and is considered the immediate cause of Lord Dunsmore's War of 1774. Terrible vengeance was wreaked on the white settlers by the Indians. Chief Logan incorrectly blamed Colonel Cresap for his brother's death and in turn, Cresap despised and hated Greathouse for his part in the affair.
Daniel died of the measles in 1775 in Yohogania County, Virginia at about 23 years of age. Cresap died the same year.