About half a mile west of the modern town, on a tapering spur of cliff eighty metres above the sea, are the remains of Daw's Castle - an Iron Age hill fort that Alfred the Great rebuilt around 878 AD as a burh, one of his chain of fortified strongpoints against Viking raids coming up the Bristol Channel. The ramparts have mostly gone over the cliff into the sea. But a Saxon mint was set up here in 1035 within the old walls, and silver pennies struck at Watchet have turned up in coin hoards as far away as Copenhagen and Stockholm - carried home, presumably, by the same Vikings the burh was supposed to keep out. The Anglo-Saxon Chronicle records that Earl Ottir and a king named Hroald plundered Watchet in 987 and again in 997. The port survived. The name itself is older than any of this: Brittonic gwo-coed, 'under the wood', describing how the harbour sat below an old forested ridge.

Watchet had two trades that made it. From 1564 it imported salt and wine from France, exported wool and cloth, and gradually built up the harbour wall - Sir William Wyndham paid £1,000 in 1708 for a stronger pier. Then came iron. The Brendon Hills to the south held rich ore deposits, and from 1857 the West Somerset Mineral Railway dropped that ore down to the quay at Watchet, where it was loaded onto ships bound for Newport in Wales and the great Ebbw Vale Steelworks beyond. At the peak in the late 19th century Watchet shipped forty thousand tons of iron ore a year. A second trade ran alongside it: paper. The Wansbrough Paper Mill, established in 1846 just south of town, became the largest manufacturer of paper bags in the United Kingdom by 1900. The mill imported wood pulp and esparto grass from Russia and Scandinavia and shipped finished paper back across the channel. The cliffs east of Watchet have streaks of a pale blue alabaster called Watchet Blue - the name was used for the colour as early as the 16th century, long before there was any thought of dyes.

Saint Decuman, a Celtic missionary from Pembrokeshire, came across the Bristol Channel some time in the seventh century and was murdered at Watchet around 706 AD. The hill-top church above the town is dedicated to him; his bones were said to have been moved into it when the older church near Daw's Castle was abandoned to the sea. The 15th-century Grade I listed building is full of Wyndham family monuments - the local lords of the manor for centuries - including a memorial to Sir John Wyndham (1558-1645), who organised the West Country's defences against the Spanish Armada. Coleridge's connection began in 1797 when he was living at Coleridge Cottage in Nether Stowey, ten miles inland. Walking these hills with William and Dorothy Wordsworth, he found his way down to Watchet harbour; the view from St Decuman's churchyard, locals will tell you, is where the Ancient Mariner first set sail.

By the early 20th century the iron ore was gone and the mineral railway closed in 1898. The harbour kept working for the paper mill, then for general cargo, then less and less. In autumn 1923 the Cardiff Scrap and Salvage Company brought in HMS Fox, a 320-foot Astraea-class Royal Navy cruiser, and broke her up for scrap on the Watchet foreshore - still the largest vessel ever to enter the harbour. Commercial traffic continued in a dwindling way until 2000, when the harbour was converted into a marina for pleasure boats. The 1862 cast-iron lighthouse, painted oxide red, still stands on the West Pier; Princess Anne unveiled a plaque for its 150th anniversary in 2012. The town has reinvented itself. The East Quay arts centre opened in 2021. Children still walk through the streets on Lantern Night every 16th of September carrying candles inside hollowed mangelwurzels - a custom that nobody can quite explain but everybody remembers, like everything else in Watchet.