Origins
It was discovered by world-reknowned, French scientist Louis Pasteur in the 1860s through his research on the fermentation of beer and ale. He determined yeast was alive and actively reproduced. He learned the compound, now referred to as diacetyl, is naturally produced through the fermentation process.
 
 
 
 
 
 
 
 
Pasteur at work in his laboratory, a painting by Albert Edelfelt in 1885.
 
 
 
 
 
 
 
 
European chemists later synthesized diacetyl from methyl ethyl ketone in the 1920s and shortly after, artificial-butter flavoring spread rapidly.

Role of Diacetyl in Brewing
Yeast are single-celled microorganisms that reproduce by budding. In beer, they are responsible for converting sugar into alcohol, as well as other by-products. It is this conversion that provides the main source of diacetyl in beer. Outside of alcohol and carbon dioxide, many other products occur from this conversion including the ester, α-acetolactate. Some of this ester is used by the cell to produce the amino acid valine, but most is dumped into your beer. Oxygen and high temperatures help transform this into diacetyl. The amount of diacetyl wanted varies from the type of beverage being brewed and if taken, the next step helps determine this. After fermentation, the yeast will reabsorb as much or as little diacetyl intended. Often this is referred to as a "diacetyl rest," in which high temperatures, and allowing the beer to remain in the fermenter after fermentation, will cause the yeast to reabsorb excess diacetyl and break it down.
 
At low levels, diacetyl contributes a "slickness" on the tongue. As the amount increases, it helps give a buttery or butterscotch taste to the beer. Finding the proper medium is essential in creating the most desirable beverage.