Peterson, who returned from a ban from a failed drug test against Kendall Holt in February, started brightly against his Argentine foe with good movement and solid technical form.
Matthysse, however, soon found his range and put the American down in the second round before falling down himself from a huge missed right.
Two more knockdowns were scored in the third, forcing the referee to halt the bout.
Matthysse is perhaps the hardest hitter, pound for pound, in boxing today and could be set for a huge title fight against another conqueror of Amir Khan, Danny 'Swift' Garcia, next.
During the fight Paulie Malignaggi spoke of Matthysse's power and said, "It is literally like a bomb exploding every time he lands a punch."
After the fight, Matthysse said through a translator: "The first round I was trying to find out what I was bringing to the fight.
"After the second round I started connecting with more force. I had two and a half months of preparation for this fight and that was the difference."
Feeling confident, Matthysse boasted: "Now I know I am the best at 140 pounds because no one has ever dominated Peterson the way I did tonight."
When asked by Jim Gray if he would like to fight Danny Garcia, who was in attendance at Boardwalk Hall, Matthysse responded, "Golden Boy and Al Haymon will get me that fight. I'm ready for that fight. I want to fight him."
Gray also spoke with Peterson right after the fight and asked how he felt following the three knockdowns. Peterson said, "I feel good. There is nothing physically wrong with me right now. Of course I am upset that I lost, but so far I feel good."
On his performance, "I think I got a little lazy with the jab. I started relaxing a little bit...I guess he hit me with a good shot. He did a good job.
"I recovered from that first knockdown and I was okay for a while and then, eventually, he hit me again and he hurt me again. I still thought I could have fought through it but the ref did the right thing.
"I guess tonight he was (the better fighter). He won the fight fair and square tonight. He's a good fighter."
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