He was educated at Eton College, Trinity College, Cambridge and the London Business School. From 1983 to 1986 he was a member of then-Prime Minister Margaret Thatcher's Policy Unit. He unsuccessfully stood against Glenda Jackson for the Hampstead and Highgate seat in the 1992 election, before winning the West Dorset seat in 1997. In Septmber 2001 he was appointed Shadow Home Secretary, by Iain Duncan Smith. In late 2003 the new party leader, Michael Howard, appointed Letwin his successor as Shadow Chancellor.
During the campaign for the 2001 General Election, Letwin, as shadow Chief Secretary to the Treasury, expressed an aspiration to curtail future public spending by fully 20 billion pounds per annum relative to the plans of the Labour government. When this proposal came under attack as regressive, Letwin found few allies among his colleagues prepared to defend it, and adopted a low profile for the remainder of the campaign.
Owing to his holding views more left-wing than fellow members of his party, he has been called Oliver Leftwing by some who disagree with him. Has had also been dubbed Oliver Let-'em-in on account of his view on illegal immigrants and asylum seekers.