Cotton has been used to make very fine lightweight cloth in areas with tropical climates for millennia. Evidence has been found of cotton in Mexican caves (cotton cloth and fragments of bloody fiber interwoven with feathers and fur) dating back approximately 7,000 years. There is clear archaeological evidence that people in India and South America domesticated different species of cotton independently thousands of years ago.

Cotton cultivation in the Old World began from India, where cotton has been grown for more than 6,000 years, since the pre-Harappan period. Cotton from the Harappan civilization was exported to Mesopotamia during the 3rd millennium BC,[1] and cotton was soon known to the Egyptians as well. The famous Greek historian Herodotus also wrote about Indian cotton: "There are trees which grow wild there, the fruit of which is a wool exceeding in beauty and goodness that of sheep. The Indians make their clothes of this tree wool." (Book III. 106)

In Peru, cotton was the backbone of the development of coastal cultures such as the Moche and Nazca. Cotton was grown upriver, made into nets and traded with fishing villages along the coast for large supplies of fish. The Spanish who came to Mexico in the early 1500s found the people growing cotton and wearing clothing made of it.

During the late medieval period, cotton became known as an imported fiber in northern Europe, without any knowledge of what it came from other than that it was a plant; noting its similarities to wool, people in the region could only imagine that cotton must be produced by plant-borne sheep. John Mandeville, writing in 1350, stated as fact the now-preposterous belief: "There grew there [India] a wonderful tree which bore tiny lambs on the endes of its branches. These branches were so pliable that they bent down to allow the lambs to feed when they are hungrie." (See Vegetable Lamb of Tartary.) This aspect is retained in the name for cotton in many European languages, such as German Baumwolle, which translates as "tree wool". By the end of the 16th century, cotton was cultivated throughout the warmer regions in Asia and the Americas.
The Vegetable Lamb of Tartary

India's cotton-processing sector gradually declined during British expansion in India and the establishment of colonial rule during the late 18th and early 19th centuries. This was largely due to the East India Company's de-industrialization of India, which forced the closing of cotton processing and manufacturing workshops in India, to ensure that Indian markets supplied only raw materials and were obliged to purchase manufactured textiles from Britain.

The advent of the Industrial Revolution in Britain provided a great boost to cotton manufacture, as textiles emerged as Britain's leading export. In 1738 Lewis Paul and John Wyatt, of Birmingham England, patented the Roller Spinning machine, and the flyer-and-bobbin system for drawing cotton to a more even thickness using two sets of rollers that travelled at different speeds. Later, the invention of the spinning jenny in 1764 and Richard Arkwright's spinning frame (based on the Roller Spinning Machine) in 1769 enabled British weavers to produce cotton yarn and cloth at much higher rates. From the late eighteenth century onwards, the British city of Manchester acquired the nickname "Cottonopolis" due to the cotton industry's omnipresence within the city, and Manchester's role as the heart of the global cotton trade. Production capacity was further improved by the invention of the cotton gin by Eli Whitney in 1793. Improving technology and increasing control of world markets allowed British traders to develop a commercial chain in which raw cotton fibers were (at first) purchased from colonial plantations, processed into cotton cloth in the mills of Lancashire, and then re-exported on British ships to captive colonial markets in West Africa, India, and China (via Shanghai and Hong Kong).

By the 1840s, India was no longer capable of supplying the vast quantities of cotton fibers needed by mechanised British factories, while shipping bulky, low-price cotton from India to Britain was time-consuming and expensive. This, coupled with the emergence of American cotton as a superior type (due to the longer, stronger fibers of the two domesticated native American species, Gossypium hirsutum and Gossypium barbadense), encouraged British traders to purchase cotton from plantations in the United States and the Caribbean. This was also much cheaper as it was produced by unpaid slaves. By the mid 19th century, "King Cotton" had become the backbone of the southern American economy. In the United States, cultivating and harvesting cotton became the leading occupation of slaves.

During the American Civil War, American cotton exports slumped due to a Union blockade on Southern ports, prompting the main purchasers of cotton, Britain and France, to turn to Egyptian cotton. British and French traders invested heavily in cotton plantations and the Egyptian government of Viceroy Isma'il took out substantial loans from European bankers and stock exchanges. After the American Civil War ended in 1865, British and French traders abandoned Egyptian cotton and returned to cheap American exports, sending Egypt into a deficit spiral that led to the country declaring bankruptcy in 1876, a key factor behind Egypt's annexation by the British Empire in 1882.
Picking cotton in Oklahoma in the 1890s

During this time cotton cultivation in the British Empire, especially India, greatly increased to replace the lost production of the American South which had been the main supplier to the English mills. Through tariffs and other restrictions the British government discouraged the production of cotton cloth in India; rather the raw fiber was sent to England for processing. The Indian patriot Gandhi described the process:
English people buy Indian cotton in the field, picked by Indian labor at seven cents a day, through an optional monopoly.
This cotton is shipped on British bottoms, a three weeks journey across the Indian Ocean, down the Red Sea, across the Mediterranean, through Gibraltar, across the Bay of Biscay and the Atlantic Ocean to London. One hundred per cent profit on this freight is regarded as small.
The cotton is turned into cloth in Lancashire. You pay shilling wages instead of Indian pennies to your workers. The English worker not only has the advantage of better wages, but the steel companies of England get the profit of building the factories and machines. Wages; profits; all these are spent in England.
The finished product is sent back to India at European shipping rates, once again on British ships. The captains, officers, sailors of these ships, whose wages must be paid, are English. The only Indians who profit are a few lascars who do the dirty work on the boats for a few cents a day.
The cloth is finally sold back to the kings and landlords of India who got the money to buy this expensive cloth out of the poor peasants of India who worked at seven cents a day. (Fisher 1932 pp 154-156)

In the United States, cotton remained a key crop in the southern economy after emancipation and the end of the civil war in 1865. Across the South, sharecropping evolved, in which free black farmers worked on white-owned cotton plantations in return for a share of the profits (although in reality, the system was little changed from the days of slavery). Cotton plantations required vast labor forces to hand-pick cotton fibers, and it was not until the 1950s that reliable harvesting machinery was introduced into the South (prior to this, cotton-harvesting machinery had been too clumsy to pick cotton without shredding the fibers). During the early twentieth century, employment in the cotton industry fell as machines began to replace labourers, and as the South's rural labor force dwindled during the First and Second World Wars. Today, cotton remains a major export of the southern United States, and a majority of the world's annual cotton crop is of the long-staple American variety.