Ledbury's name derives from its proximity to the River Leadon, on the eastern slope of whose valley it lies. A Roman road ran along the western side of that valley. An Anglo-Saxon minster church (just possibly the original episcopal seat of the diocese of Hereford) and the nearby crossroads of important regional routes – connecting to Gloucester in the south, Bromyard the north, Hereford to west, Malvern and Worcester to north-east – were the original magnets for settlement and trade. A priest was mentioned in Domesday as residing there, but the oldest part of surviving church fabric dates to late eleventh or early twelfth century, though most of the church dates from a substantial rebuild in the late twelfth century, with various additions or alterations later in the Middle Ages.

Bishop Richard de Capella is credited with founding a planned town around 1125, although (as at Bromyard) it was left to his successor Robert de Bethune to obtain, in 1138, royal licence for a Sunday market; in 1249 a market on Fridays was authorized, but whether this was an additional market-day, or a substitute for the Sunday event, is not clear, though the latter seems the more probable. Bethune's licence likely only formalized an existing market that would also have pre-dated Capella's town foundation. A funnel-shaped space at the crossroads, just northwest of the churchyard, adds weight to this assumption, although not conclusive evidence of an early marketplace at that site, and the medieval dedication of the church to St. Peter may also add a little fuel to the fire. Fair rights were obtained for the town, by Bethune's successor from the earl of Hereford, not until the 1150s, a delay that may have had something to do with a dispute in the '40s between Bethune and the previous earl. A second fair came from the royal licence of 1249, while a third was in existence by 1404, when it yielded 40s. in tolls. Further indication of episcopal interest is seen in the construction of a palace there, although not heavily used (and decommissioned in 1356 as part of a belt-tightening initiative), as well as the rebuilding of the church on an impressively large scale. Bishop Foliot built a hospital complex at Ledbury in 1232, to support the poor and needy.

A survey of episcopal lands which includes the burgus of Ledbury, drawn up ca.1288, shows the bishop had 282 tenanted properties there, of which 37 were selds whose tenants included a cooper, mercer, fuller, skinner, plumber, goldsmith, and baker; while a dozen men held stalls in the butchery, and other names of burgage tenants reflect the cloth industry (several tailors and weavers, a dyer, a nap-trimmer, and a blanket-maker) or occupations as diverse as wheelwright, tiler, spurrier, glover, tinker, poulterer, miller, and prostitute. The wide range of artisans and the inclusion among them of dealers in precious metals and furs is a reflection of Ledbury's prosperity by the late thirteenth century. The presence of a large number of clerics suggests Ledbury was something of an ecclesiastical centre, which would have contributed to economic growth. An extent made in 1404 of bishopric properties in Herefordshire found that the Monday market in Ledbury borough produced 13s.4d annually in tolls, and the fair tolls amounted to about 40s. While the twelfth and thirteenth century had seen Ledbury prospering and expanding, in the fourteenth the bad harvests and then plague put a damper on its economy; in the sixteenth century it could still be described as economically depressed. But Ledbury's involvement in cloth and leather industries assisted it in a gradual recovery and survival as one of the medium-sized market towns of the county.

As already mentioned, the pre-urban settlement may have had a market in a funnel-shaped space on the east-west through-road, at its closest approach to the church, on the east side of the crossroads. However, in the planned town, part of which may have been laid out over some of the older settlement, a new marketplace was provided on the north-south road, just below the crossroads (the later High Street, then known as Middletown), through a triangular widening; this remains the site of Ledbury's markets today. A brook running past the churchyard and westwards to the river would have served both the old and new marketplace as a drain. The new town's burgage plots were laid out on either side of the High Street, beside and beyond the market area, and along its continuation (Homend) north of the crossroads; vestiges exist of back lanes (one called Back Way) servicing the rears of tenements along either side of Homend. Still later a further market area emerged on Bye Street – the west arm of the crossroads – leading to the bridge across the Leadon – as a widening of that street. perhaps associated with a rectangular space on the south side of the street, the west side of that space being later known as Market Street; this marketplace too would have been able to make use of the brook. This brook must also have served local tanners; some were certainly installed in properties at the junction of Bye Street and Homend in the post-medieval period.

By the time of the aforementioned survey, permanent shops had already begun to supersede market stalls in both these newer market areas – a trend that continued apace in the early fourteenth century – and settlement had (before 1232) expanded onto New Street running westwards off the southern end of the High Street market area; a Market Street connected New Street with the Bye Street marketplace. This looks like a planned expansion to the original town, with shorter tenement plots (constrained in part by the burgages stretching off the west side of the High Street) adequate for small traders or some artisans; conceivably the 1249 licence for a second market day may have been associated with the second marketplace established in Bye Street, as a retrospective formalization, marking the completion of the second phase of development of the town. More expansion, further north along Homend, took place after 1288, probably in the medieval period and likely before the downturn of the fourteenth century; by this period the High Street marketplace was being paved and infilling was taking place in the form of two rows of permanent structures: Butchers Row (the earlier shambles) and Shoppe Row, demolished in the seventeenth century to make way for a market hall. An earlier Booth Hall in the High Street may have served for collection of tolls, but was more certainly the home of borough administration.