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The town's name is conjectured to derive from 'Twy-ford-ton' or 'Twyverton', meaning 'the town on two fords'. The town stands at the confluence of the rivers Exe and Lowman. Human occupation in the area dates back to the Stone Age, with many flint tools found in the area. An Iron Age hill fort, Cranmore Castle stands at the top of Exeter Hill above the town, and a Roman fort, or rather marching camp, was discovered on the hillside below Knightshayes Court near Bolham, just to the north of the town. It was also the site chosen by Henry I for a Norman castle, Tiverton Castle first built in 1106 as a Motte and Bailey type and extensively remodelled in the 13th and 14th Centuries.
Tiverton owes its early growth and prosperity to the wool trade which caused the town to grow rapidly in the 16th and 17th Centuries. Many wealthy wool merchants added to the town's heritage: for example, John Greenway (1460–1529) added a chapel to St Peter's parish church in 1517, and a small chapel and almshouses in Gold Street which still stand; the Almshouse Trust still houses people today. Peter Blundell, another wealthy merchant, who died in 1601, bequeathed the funds and land to found Blundell's School to educate local children. The school was founded in Tiverton in 1604, and relocated to its present location on the outskirts of town in 1882, where it functions to the present day as an independent school Around 1600 there were two major fires in the town, the first in 1596, allegedly started in a frying pan, destroyed most of the town. The second, in 1612, was known as the "dog fight fire" because a dog fight had distracted people who were supposed to be looking after a furnace.
During the English Civil War in 1645 Tiverton Castle, held by the Royalists, was the scene of a relatively brief siege by Thomas Fairfax's Parliamentarian forces. The Parliamentarian forces entered Tiverton under Major General Massey on October 15, the town's defenders fleeing before him towards Exeter. They left a defending force in the castle and church. Fairfax arrived from Cullompton on October 17, set up his artillery and bombarded the castle for two days, ceasing fire for the sabbath in the afternoon of Saturday October 18. On the Sunday Fairfax had 'several great pieces' of artillery brought up, ready for renewed barrage on the Monday, which commenced at 7am. The siege was ended when a lucky shot broke one of the drawbridge chains and an alert squad of Roundheads gained swift entry. Fairfax then set up his winter quarters in Tiverton due to the inclement weather, requisitioning Blundell's School as his headquarters. He was joined here in December 1645 by Oliver Cromwell. They left to lay siege to Plymouth in January 1646.
The town enjoyed prosperity from the wool trade in the early 18th century. However, a period of decline followed during the early Industrial Revolution. There were occasional riots and societies of Woolcombers and Weavers were formed in an effort to protect jobs and wages. By the end of the century, due to imports of cotton and the expansion of industrialization elsewhere, along with the effect of the Napoleonic Wars on exports, the town's woollen industry was in terminal decline. In 1731 another fire destroyed more than 200 houses in the town, causing £150,000 worth of damage. After this, the streets were widened.
The industrialist John Heathcoat bought an old woollen mill on the river Exe in 1815 and following the destruction of his machinery at Loughborough by former Luddites thought to have been in the pay of the Lacemakers of Nottingham he moved his entire lace-making operation to Tiverton. The factory turned the fortunes of Tiverton around once again, and it became an early industrial centre in the South West. Trade was aided when a branch of the Grand Western Canal from Taunton to Tiverton was opened in 1838, followed by a branch of the Great Western Railway in 1848.
Although small, Tiverton had two MPs representing it. As one of the "rotten boroughs" it was often targeted by those seeking electoral reform. Lord Palmerston, or 'Pam' as he was known locally, was an MP for Tiverton for a large part of the 19th century. In 1847, the Chartists, a radical group seeking to change the electoral system, stood one of their leaders, George Julian Harney, against Palmerston. He is widely reported as having gained no votes - but in fact he won the 'popular vote' (A show of hands of the people of the town), and withdrew when Palmerston called a ballot, aware that he would lose in a vote consisting only of the wealthy and propertied in the town. Only 400 out of a population of 7000 were entitled to vote at that time, which was one of the things the Chartists sought to change. After the Reform Act of 1867, Tiverton had just one MP. The seat was for a long period held by a member of the Heathcoat-Amory family, most recently Derick Heathcoat-Amory who served as MP from 1945 to 1960. Up until 2010 David Heathcoat-Amory was the MP for Wells in nearby Somerset.
The town was the last in the Devon and Cornwall area to retain an independent police force, until 1945. In the second half of the 20th century, Tiverton once again slowly declined in prosperity, as the Heathcoat factory became ever more mechanised, and the Starkey Knight & Ford brewery was taken over by Whitbread as its regional brewery, but later closed, becoming just a bottling plant. It then lay derelict for some years before being demolished to make way for a supermarket and multi-storey car-park. The manufacture of agricultural machinery adjacent to the River Lowman dwindled, the railway closed in 1964 and the Globe Elastic plant in Kennedy Way also closed down in the 1980s. However, in this period a few far-sighted individuals, most notably probably William Authers, secured some important assets for the future of the town. The Tiverton Museum was opened during this time, the trackbed of the old railway was bought up and now remains as footpaths and an adventure playground, and the Grand Western Canal was saved from dereliction and revived as a country park.
During the 1990s, retailing in the town declined still further after the opening of the Southern Relief Road (now "Great Western Way") led to the closure of Fore Street in the town centre to all but pedestrian traffic. This decline has been reversed by various regeneration projects, and Tiverton now thrives, especially on the main market days Tuesday, Friday and Saturday.