Lloyd had started his Team Hard Cupra Leon from pole position and led the Excelr8 Motorsport Hyundai i30 N of Tom Chilton, who was soon given a five-second penalty for an out-of-position start.
Butcher, from fifth on the grid, got past the West Surrey Racing BMW 330e M Sport of Adam Morgan on the Craner Curves to move up to fourth in his Speedworks Motorsport Toyota Corolla.
Aron Taylor-Smith was running third at the wheel of his Power Maxed Racing Vauxhall Astra, before on the fourth lap he chiselled an opening on Chilton at the Melbourne hairpin.
Butcher then took advantage of that to demote Chilton by sweeping around the outside of Goddards.
Next time around, Butcher dived down the inside of the Old Hairpin to grab second place off Taylor-Smith, and the gap to leader Lloyd by the end of the lap was 1.791 seconds.
Lloyd was beginning to build on that gap when the safety car emerged, after BMW debris was spread on the track by Jake Hill clouting the tyre stack at the esses – the Kentishman had been tucked up behind Rowbottom and was unsighted by the stack, which had been hit by another car on the previous lap and had moved.
Butcher put Lloyd under immense pressure from the restart, with seven laps of racing remaining.
The Scot would feint moves on the Yorkshireman, but there was never a clear-cut opportunity.
Then, on the final lap, Lloyd suffered driveshaft failure at McLeans, and this pitched him off the road and into the gravel at Coppice.
“I’m gutted, devastated, it just went,” said Lloyd.
“I think it was from hitting a kerb, but it was a kerb I’ve probably hit 100 times this weekend.”
Butcher still had Taylor-Smith hard on his heels, but held on to clinch his first victory of the season by 0.357s.
“I’ll take that after the year I’ve had,” said Butcher. “It’s been tough.
“We had more pace than Dan but it was really difficult to overtake him – he was good in his defence and he definitely deserved to be up there.”
Morgan finished third, very close behind the leading duo, while Ricky Collard claimed fourth in his Speedworks Toyota.
Rowbottom was running in Collard’s vicinity in his Motorbase Performance Ford Focus, but he was another to hit the tyre stack. This forced Hill, who was still running strongly in his battered BMW, into evasive action, and also delayed the sister WSR BMW of Colin Turkington.
This allowed Tom Ingram and championship leader Ash Sutton to make up a stack of places in one go.
But Rowbottom now had a delaminating tyre, and couldn’t go into the pits because Chilton was alongside him to his left.
As he got to Redgate, the stricken Rowbottom ran wide, in turn forcing Ingram’s Excelr8 Hyundai wide – the two cars were briefly locked together and Sutton made up yet another position.
Sutton therefore finished fifth from 12th on the grid to further extend his points lead, with Turkington sixth and Ingram seventh.
Chilton, who suffered issues that resulted in his hybrid not working, was eighth on the road, but his penalty promoted Hill, Sam Osborne (Motorbase Ford) and Stephen Jelley (WSR BMW) to the other spots in the top 10.
BTCC Donington Park race three results (15 laps)
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