He then explained how Damon "allowed" Casey Affleck to star in Manchester by the Sea - a role which later in the evening won him the Best Actor award - while he took on a part in The Great Wall instead.
He mocked: "He handed an Oscar-calibre role over to his friend and made a Chinese pony tail movie instead.
"And that movie went on to lose $80 million. Smooth move, dumb ass. See? It's so easy to reach out and heal."
Later in the show, Kimmel brought out a bus of tourists and introduced them to some of the biggest stars in the room - and while introducing one to Casey, advised him to "ignore the jerk" behind, who turned out to be Damon.
And the jibes didn't stop there, as the presenter looked back at his foe's role in We Bought a Zoo and observed: "He has almost no discernible talent. But he works."
And the Manchester by the Sea producer didn't even get chance to get his revenge. When he and their mutual pal Ben Affleck took to the stage to present an award, music began playing Damon off every time he tried to speak.
Kimmel joked: "Wrap it up! We want to go home!"
While the crowds seemed to appreciate the gag, many viewers took to social media, wondering whether the jokes had gone too far.
Before the night was out, Kimmel took one final dig at his friend as he introduced Warren Beatty and Faye Dunaway, who were presenting Best Picture.
He quipped: "And now, my favourite part of the night is here. A chance to see Matt Damon lose an Academy Award."
Sadly for Kimmel, his so-far smooth running stint as host then went awry after the pair mistakenly named La La Land as the winner over Moonlight, but he calmly stepped in to resolve the situation.
Afterwards, he wrapped the telecast and said: "I knew I would screw this show up. I really did."
But Damon wasn't the only person in the Jimmy Kimmel Live! star's firing line as he also took aim at US President Donald Trump.
He said: "As you know, I don't have to tell anybody, the country is divided right now. I've been getting a lot of advice. It's time to bring people together. You have to say something.
"Let's just get something straight off the top. I can't do that. There's only one Braveheart in the room, and he's not gonna unite us either. Mel [Gibson], you look great. I think the Scientology is working. I really do.
"I'm not the man to unite this country, but it can be done. You know, if every person watching this show - I don't want to get too serious, but there are millions and millions of people watching right now - and if every one of you took a minute to reach out to one person you disagree with, someone you like, and have a positive, considerate conversation - not as liberals or conservatives, as Americans - if we could all do that, we can make America great again. We really could. It starts with us."
And later in his monologue, he joked: "I want to say thank you to President Trump. I mean remember last year when it seemed like the Oscars were racist? It has been an amazing year for movies. Black people saved NASA and white people saved jazz. That's what you call progress."
- Bang! Showbiz
