Although some were driven by animal power, most early mills were built in rural locations near to fast-flowing rivers and streams and had water wheels to power them. The development of viable rotative steam engines by Boulton and Watt led from 1781 to the growth of larger, steam-powered mills and allowed them to be concentrated in urban mill towns, most notably Manchester, which with neighbouring Salford had more than 50 mills by 1802.
The mechanisation of the spinning process in the early factories was instrumental in the growth of the machine tool industry, enabling the construction of larger cotton mills. Limited companies were developed to construct mills, and the trading floors of the cotton exchange in Manchester, created a vast commercial city. Mills generated employment, drawing workers from largely rural areas and expanding urban populations. They provided incomes for girls and women. Child labour was used in the mills, and the factory system led to organised labour. Poor conditions became the subject of exposés, and in England, the Factory Acts were written to regulate them.
The cotton mill, originally a Lancashire phenomenon, was copied in New England and later in the southern states of America. In the 20th century, North West England lost its supremacy to the United States, then to India and subsequently to China.
In the mid-16th century Manchester was an important manufacturing centre for woollens and linen and market for textiles made elsewhere. The fustian district of Lancashire, from Blackburn to Bolton, west to Wigan and Leigh and south towards Manchester, used flax and raw cotton imported along the Mersey and Irwell Navigation.
During the Industrial Revolution cotton manufacture changed from a domestic to a mechanised industry, made possible by inventions and advances in technology. The weaving process was the first to be mechanised by the invention of John Kay's flying shuttle in 1733. The manually-operated spinning jenny was developed by James Hargreaves in about 1764 speeded up the spinning process. The roller spinning principle of Paul and Bourne became the basis of Richard Arkwright's spinning frame and water frame, patented in 1769. The principles of the spinning jenny and water frame were combined by Samuel Crompton in his spinning mule of 1779, but water power was not applied to it until 1792. Many mills were built after Arkwright's patent expired in 1783 and by 1788, there were about 210 mills in Great Britain. The development of cotton mills was linked to the development of the machinery they contained. By 1774, 30,000 people in Manchester were employed using the domestic system in cotton manufacture. Handloom weaving lingered into the mid-19th century but cotton spinning in mills relying on water power and subsequently steam power using fuel from the Lancashire Coalfield began to develop before 1800.