Born in Greenock, Scotland, Paterson worked as a shipping manager before migrating to Australia in 1875.

Paterson contested the seat of Capricornia in the 1901 Federal election, winning by a margin of 139 votes over the ALP candidate Wallace Nelson.

The bill was subsequently passed, and set in motion what is popularly known as the White Australia policy, which survived until late in the 20th century.

Paterson did not contest the subsequent election for health reasons, and retired from politics.

He died at his home in Melbourne on 23 March 1908, after years of ill health.