Situated on Essex's border with Suffolk, Dedham lies in the Stour Valley, far enough upslope, south of the river, to escape the flooding to which the riverbanks were vulnerable; three miles east, the river opens up, near Manningtree, into a broad estuary that enters the North Sea at Harwich. The river was navigable, at times, as far inland as Sudbury, a market town since at least the time of Domesday, but any use of the river for commercial transportation has left no evidence. Dedham lay at one of its crossing points, near where the Black brook joins it after skirting the south side of Dedham; the tidal waters of the estuary meant that the river between Dedham and Manningtree was flanked partly by marshland, although there was also good meadowland. Dedham was placed not quite midway between Colchester and Ipswich; the road connecting those two boroughs ran along the western boundary of the parish.

Though some prehistoric and Roman settlement is evidenced in Dedham parish – or Diham as often rendered in medieval documents – the place-name is of Saxon origin. Domesday shows a small settlement to have been present at the close of the Saxon period, probably clustered around St. Mary's church. Clearance of the woodland that once covered the site is perhaps suggested by indicators of growth seen between 1066 and 1086, yet this process was still going on into the early fourteenth century and the overall impression is that Dedham grew only at a slow pace, suffering a setback following the Black Death. The manor portrayed by Domesday was subsequently partitioned between heirs of the Domesday owner and eventually these shares were consolidated into two or three manors, each having property in the town that emerged; at least two manorial courts had jurisdiction in Dedham, divided topographically on roughly an east-west basis. In the early thirteenth century part of the manor was given to Campsey Priory, which lay near Wickham Market (Suff.), whose lord was the Ufford Earl of Suffolk; the nunnery was founded by the Valognes, came to the Uffords (along with extensive endowments) through marriage to a Valognes heiress, and served as the burial-place of many Uffords, who were the principal patrons of the priory. Another part of Dedham manor, having reverted to the Crown in 1337, later came to the earl and then, through a complex process involving attainder, sale, restoration, and grant passed through a variety of other lordships. None of these various owners, who included a London mayor and an archbishop, some holding for only brief periods, is likely to have had much active involvement in developing Dedham (such as by installing a burghal component), with an important exception, noted below.

The road south from the river, its watermill, and nearby ford (the course of the road shifting slightly when a bridge was built to supersede the ford, in the post-medieval period), entered the village at a junction with an east-west street, the later High Street; this was the only street in medieval Dedham, supplemented by a few lanes accessing the manor-houses and the back ends of properties. A widened stretch on either side of the junction served as a marketplace. This was wider than is apparent today, for its northern side was later encroached on, and its southern side may have extended south on either side of the churchyard (immediately south-west of the junction). Or perhaps it would be more accurate to say that church and churchyard projected into the marketplace; for it is possible that properties on either side of the churchyard did not exist in the Middle Ages, except for a building facing towards the junction, which housed the manorial court. The building immediately opposite, on the corner of the High Street and lane to the river, may have been, at one point in the Late Middle Ages, a market house for the sale of wool and grain. The absence of a market licence for Dedham could point to a market having been of long standing, or (more likely) to only a gradual development of market activity, in the shadow of Manningtree's licensed market; though Dedham apparently had a fair in 1383. When Colchester complained in 1317 of unfair competition from a number of markets in the area of Essex surrounding it, there was no mention of Dedham, which suggests it had no market of any consequence at that time. None of the tenants of medieval Dedham are referred to as burgesses, nor is there any clear indication, in modern boundary properties, of burgage-type plots laid out along the High Street, although a group opposite the churchyard all terminate at a back lane. Dedham's urban status in the Middle Ages must therefore remain a question-mark.

Nonetheless, its economic development late in that period makes urbanity a possibility and, by the opening of the sixteenth century, we can reasonably categorize Dedham as a small market town, thanks to the wealth and occupational diversity generated by a growing cloth industry. The originally agriculture-based economy of the area around Dedham became increasingly specialized as the wool trade and cloth industry developed, though agrarian activities continued to be important. By 1428 (but conceivably long before) one of the manorial leet courts was administering the assizes of bread and ale, and fifteen brewers were fined for infringement that year; this is reflective of local commerce in foodstuffs, but not necessarily regularized market activity.

The development of Dedham into one of Essex's cloth-making centres – not exclusive to, but concentrated in, the northern part of the county, and outside the immediate influence of Colchester – took place over the course of the Late Middle Ages; earliest evidence of cloth-making comes in the thirteenth century, with further development in the next – some of the immigrant weavers from Flanders settling there during Edward III's reign. The industry's maturation is indicated by the conversion of the watermill near the ford into a fulling mill in the late fourteenth century – land between it and the river being outfitted with tenter frames – and by construction of a second fulling mill nearby around the turn of the century. This was a collaboration between two of the manorial lords, including one of the earls of Suffolk, who also provided tenter space and a cottage for the fullers who had leased the mill. By the close of the fourteenth century, Dedham was producing more cloth than Chelmsford or Maldon and was edging up on Coggeshall's productivity; by mid-fifteenth it was neck-and-neck with Coggeshall, only Colchester itself being more productive [R.H. Britnell, Growth and Decline in Colchester, 1300-1525, Cambridge University Press, 1986, pp. 80, 188-89]. Dedham's cloth-makers were making narrow cloths ('straits') in the late fourteenth century, but broadcloths in the mid-fifteenth, notwithstanding a decline in the export of cloth; by the seventeenth century they were specializing in bays and says. Naturally, wealth within the Dedham community gravitated towards the clothiers, who increasingly exercised control over the entire process of cloth-making, from the acquisition of wool to the marketing of the finished product; some of them had become wealthy enough by the late fifteenth century to finance the rebuilding of the church, and this period, into the early sixteenth century, seems to represent the economic peak for Dedham.

Yet even at an earlier date, from the late fourteenth century, some Dedham men were doing well enough to move on to Colchester and establish themselves in burgages there, while Dedham butchers are evidenced as selling in Colchester's market in 1406. When Campsey Priory secured its hold on an estate at Dedham, through an agreement with another rights-holder recorded in a fine of 1240, the tenants were said to include Peter the Goldsmith, Osbert the Tailor, John the Shoemaker, Robert the Fuller, along with Wlvene Tele, Avelina Tele, and Gilbert Tele whose surnames probably point to weavers. It is hard to credit that a goldsmith could have done good business in Dedham, but surnames are not always reliable as indications of occupation. The same fine makes reference to Liningesmede among the fields of the manor and this name may indicate a space where linen was laid out to dry (though other interpretations are possible). A growing cloth-making industry would have given rise to ancillary occupations, including those who marketed cloth, and we encounter references to mercantile occupations at Dedham in the 1320s. It thus seems to have been becoming a manufacturing centre, although not necessarily a market centre. Other industries did not develop to any significant level until the river was canalized in the post-medieval period. By that time the decline of the cloth trade had already depressed Dedham's economy, forcing it to seek other avenues for industry.

We could reasonably wonder whether one of the Ufford lords of Dedham, if prepared to foster the cloth-manufacturing industry there, was also inclined to expand the settlement with a burghal component. But the family represents a relatively late ascent from modest beginnings into the upper ranks of those landholders most active in market licensing, and preserved a niche within that class for only a few generations, none of which was greatly active in founding either markets or towns. The grandfather of William de Ufford (ca.1338-82) was a Robert de Ufford (ca. 1279-1316), whose landed holdings in that county were sufficient that he could be summoned to parliament, and thereby deemed baronial, in 1308. The family name was taken from a Suffolk manor lying between Ipswich and Wickham Market; this proximity probably explains why no member of the family tried to institute a formal market at Ufford, for an earlier Robert de Ufford (d.1298) is recorded in 1274/75 as owner of the market at Wickham. One modern source [Wickham Market Conservation Area Appraisal, Suffolk Coastal District Council, 2016 p.5] claims that Wickham was granted market and fair in 1268, but this appears to be a confusion with Wickham in Hampshire, licensed 1269. The Suffolk Wickham (which only in the post-medieval period attained borough status) had earlier been property of the Bigod earls of Norfolk, reverting to the king when the Bigod line died out (1306), but there seems in this no direct link to the Uffords. To help counter Bigod domination of East Anglia, Henry II had raised a castle at Orford; this attracted settlement and Orford, near the Suffolk coast, developed into a river port and borough of moderate significance, though its commercial viability was compromised by its access route to the sea silting up over the course of the Middle Ages. The castle came into the hands of Robert de Ufford and in 1330 a life grant of it was made to his like-named son (1298-1369), who had, through military and other services, earned the confidence and favour of Edward III; in 1335 Edward made this Robert Earl of Suffolk, and the following year extended the grant of Orford Castle to Robert's heirs. In 1298 Robert is seen as holder of the Orford market, presumably as an appurtenance of the castle. The only markets licensed by Uffords, however, were at Bawdsey (in 1283 by an earlier Robert), another coastal settlement in Suffolk, and at Winterton (1345, by Earl Robert), a fishing and farming community on the Norfolk coast. The second earl, William de Ufford, is not associated with any market grants; he dying 1382 of an apparent heart attack, and his children all having predeceased him, the earldom and much of its property reverted to the Crown. There is little in this family history to suggest any Ufford very likely to have introduced a burghal unit at Dedham, although it remains conceivable.