In the early 14th century, the area immediately north of Monmouth, known as Archenfield, became known for the high quality of its wool, produced from Ryeland sheep. The wool was ideal for the production of high quality felt, and the location of Monmouth, on the River Wye some 18 miles (29 km) inland from the Severn estuary, allowed the produce of the area ready access to wider markets. The industry of cap manufacture by hand knitters in and around Monmouth was well established by the 15th century, when court records show Capper as a common surname in the town. The cappers or knitters, generally men, were attached to the Weaver's Guild and may have been governed by a Council of Master Craftsmen. The trade is thought to have flourished particularly in the Overmonnow area, known at one time as "Cappers' town". However, antiquarian sources state that much of the trade moved from Monmouth to Bewdley in Worcestershire at some point, following an outbreak of plague at Monmouth.
The headgear reached the height of its popularity in the 15th and 16th centuries. Monmouth caps were essential equipment for soldiers, sailors and labourers of the period, so familiar and widely used that they were taken for granted. According to one 19th century encyclopedia, they were at one time "worn by a large portion of the population of England and Wales." The Cappers Act of 1488 forbade, on penalty of a fine, the wearing of foreign-made caps in England. A further Act of Parliament in 1571, during the reign of Elizabeth I, stated that every person above the age of six years (excepting "Maids, ladies, gentlewomen, noble personages, and every Lord, knight and gentleman of twenty marks land") residing in any of the cities, towns, villages or hamlets of England, must wear, on Sundays and holidays (except when travelling), "a cap of wool, thicked and dressed in England, made within this realm, and only dressed and finished by some of the trade of cappers, upon pain to forfeit for every day of not wearing 3s. 4d." This legislation was intended to protect domestic production, as caps were becoming unfashionable and were being challenged by new forms of imported headgear. It was repealed in 1597 as unworkable.
The earliest surviving reference to a "Monmouth cappe" dates from 1576, in a letter from Lord Gilbert Talbot of Goodrich Castle to his father, the Earl of Shrewsbury, accompanying a new year's gift of a cap. By that time, the caps were popular enough to have their own name, and considered to be suitable gifts between noblemen. King Henry V was born in Monmouth, and there is a reference to such a cap in Shakespeare's play, Henry V, written around 1599:
Fluellen: "Your majesty says very true: if your majestie is remembered of it, the Welshmen did good service in a garden where leeks did grow, wearing leeks in their Monmouth caps; which, your majesty knows, to this hour is an honourable badge of the service; and I do believe your majesty takes no scorn to wear the leek upon Saint Davy's day.
In the 1620s, the sponsors of the Massachusetts Bay Colony ordered Monmouth caps - described as "thick, warm, fulled by hand- and foot- beating and much favored by seamen" - as part of the outfitting of the settlers. Daniel Defoe, in his 1712 Tour through the Whole Island of Great Britain, described Monmouth caps as being worn predominantly by Dutch seamen. Peter the Great of Russia wore one when working for the East India Company in 1697; it is preserved in the Hermitage Museum in St Petersburg.