Border town Oswestry arose within the manor of Maesbury, which was described in Domesday as waste in the Confessor's day, perhaps due to effects of cross-border warfare. Earl Roger de Montgomery placed it in the keeping of the first known sheriff of Shropshire, Warin the Bald, who worked to re-establish settlement (and thereby revenue generation). Domesday mentions a church there and a castle (given the generic name 'The Work') built by a subsequent sheriff, Rainald Balliol, who likewise held the manor of Earl Roger. Maesbury's focus lies south of Oswestry and probably represents any Saxon presence. Before the fourteenth century Oswestry was more commonly known as Blancmoster, a reference to the Saxon minster church dedicated to St. Oswald of Northumbria, believed slain there in 642, so that the site attracted pilgrims thereafter. The name Oswestry, meaning Oswald's tree (i.e. cross), was possibly derived from a legend that arose about his death (or the legend was fabricated to explain the name), but more likely from a boundary marker of the Maesbury estate; it is first encountered ca.1180 in association with the site of the castle, and appeared sporadically over the next couple of centuries before acquiring dominance in usage.
The manor came into the hands of the Fitz-Alan family, again apparently as an appurtenance of the shrievalty an office held by Alan Fitz-Flaad in the years leading up to his death in 1114, subsequently (1137/38 and 1155/59) by his son, William I Fitz-Alan, and later (1190-1201) by Alan's grandson William II Fitz-Alan. Bearing in mind the close proximity to the contested border area which may have brought Oswestry temporarily into Welsh hands for part of Stephen's reign the castle became, under a Fitz-Alan Marcher lordship, both a defensive and offensive base; the kind of commercial opportunities this could generate is suggested by the royal expedition of 1211 into Wales, which set off from Oswestry, leaving a quantity of surplus grain, wine and other supplies that were subsequently sold off by royal agents there, until July 1212 when the king ordered no more sold and large numbers of pigs, geese and other poultry purchased for transmission to wherever they would be neded. It is suspected that the origins of settlement at Oswestry may have lain in the castle bailey, perhaps as early as ca. 1100, although we can only speculate whether this would have had an urban character.
Around 1190, or a little later, William II Fitz-Alan issued a charter assuring his burgesses of Blancmoster, meaning (as specified in the charter) those who had received from his bailiff properties which would improve the profitability of his market of his protective and supportive lordship, and specifying that burgages were to be held by the same tenurial customs as those in force at Shrewsbury. William II Fitz-Alan (ca.1155-1210) was a minor at the death of his father and so did not succeed immediately to administration of his landed inheritance in Shropshire and several other counties, whilst his widowed mother or step-mother, Isabella de Say, continued in possession of her baronial inheritance at Clun. He came into his inheritance in 1175, and about the same time married the young daughter of Hugh de Lacy of Ludlow, which brought him a few other Shropshire manors. It was not until early 1190 that he was considered experienced enough to warrant making him sheriff, in which office he continued for the next decade, and it was during that period that he instituted the borough at Oswestry, apparently to develop an existing market there. Isabella de Say having died 1199 and left William lord of Clun, in 1204 he obtained a fair licence for it and, on the same occasion, a fair for his Oxfordshire manor of Norton (later the borough of Chipping Norton).
Although William II's son John I Fitz-Alan (d. ca. 1240) was an opponent of King John, prompting the latter's assault on Oswestry in 1216, which was said to have done severe damage to the town, recovery followed. After being accepted back into the king's grace, John acquired licence in September 1228 for a fair to be held around St. Andrew's day (late November) at Blancmoster. Yet a few weeks later before the fair even had the opportunity of its inaugural occurrence the sheriff was ordered to close down Oswestry's market and fair, after complaints from Shrewsbury and Montgomery that they were detrimental to their own. This challenge was partially overcome in December by changing the market day from Thursday to Monday and instructing the sheriff to ensure the new market went ahead; that it did not entirely resolve the conflict is suggested by a somewhat vague royal order of 1233 to the sheriff to clamp down on unconventional trading at Oswestry that was detrimental to Shrewsbury's toll revenues. The fate of the fair is less clear, but in 1253 John II Fitz-Alan obtained a new licence for it, at the same time renewing the licence for the fair at Chipping Norton and licensing a new fair at Clun. Meanwhile it had been John's turn (1250) to issue his own challenge, against a market and fair established at Knockin the year before. There may have been a much older fair in existence at Oswestry, celebrated around the festival of St. Oswald in August; for in 1276, during the minority of one of the Fitz-Alan lords, the royal keeper's accounts of its revenues included reference to proceeds from St. Oswald's fair as well as mentioning the St. Andrew's fair (which had been cancelled due to the war with Wales).
William II Fitz-Alan, in the same period that he instituted the borough in Oswestry, assigned the advowson of St. Oswald's church to Shrewsbury Abbey. The Extensive Urban Survey report for Oswestry allows the possibility of Eyton's conjecture that this church represented a transfer of an earlier one from further south, nearer the supposed centre of Maesbury, perhaps by William II when he founded the borough, although the oldest surviving fabric is thirteenth century. But particularly since we do not know where that centre was, and since not only the church but also the castle, further north, were considered part of Maesbury by Domesday no reason has been put forward as to why St. Oswald's might not be simply a successor to the Saxon minster on the same site, where a sixteenth-century record mentions a cloister. The church's glebe was large enough to hold a number of tenants and the Abbey purchased from John I Fitz-Alan the right for those tenants to make and bake goods and to buy and sell in Oswestry's marketplace, free of most tolls, with the exception of one penny due per brew of ale (the local version of brewingavel); John II Fitz-Alan's reissue of the grant also excepted a 2d. toll on the sale of a horse, and 4d. on the sale of any pig worth 40d. or more, these tolls being said to be customary in the town. In the opening years of the thirteenth century the Bishop of St. Asaph founded a hospital in Oswestry on land belonging to its church (that is, to Shrewsbury Abbey); to this the burgesses allocated, with William II Fitz-Alan's approval, a portion from every horseload brought into the corn and salt market of the town, one gallon of ale from every brewing, and one loaf from every baking. References to burgesses with the occupational surname of Salter confirms that this commodity was of some significance locally.
Oswestry's market continued to flourish as trade with Wales increased, and by 1267 the owner was taking £9 13s.4d in annual profits from it, £20 in 1271, and £27 12s. in 1276, when St. Oswald's fair was reported as earning £4 6s.2d.; in 1362/63 market stallage fees alone produced £1 13s. A further seigneurial charter (1263) contained the provisions that any non-burgess trading outside of the market would be arrested, and that the burgesses could make bye-laws to increase the profitability of the town, which suggests either a town council or a merchant gild to have been in existence. As the town prospered so its population and physical fabric grew correspondingly; it having outgrown the bailey, and being exposed to Welsh attacks, John II Fitz-Alan obtained (1257) for the town the first of a series of murage grants; over the next few decades walls were erected and the castle strengthened. Unlike the lords of Newport, the lords of Oswestry were more active in protecting their investment, and the townspeople were doubtless equally desirous of defences the murage grant of 1283, for the unusually long duration of twenty years, was issued to the bailiffs, burgesses, and other good men of the town. Whatever defences were in place by 1294/95 were insufficient to prevent Oswestry suffering damage from an insurrection among the Welsh. But such crises were the exception, not the rule, and Oswestry was resilient. Many of its residents were themselves Welsh, although not apparently burgesses until after the pacification of Wales was complete. In 1330 Roger de Mortimer, who had temporarily displaced the Fitz-Alans following the overthrow of Edward II, obtained licence for an additional fair at Oswestry, in May. It remained one of the more important market towns in the Welsh Marches in the Late Middle Ages, increasingly as a centre for the distribution of cloth manufactured in Wales.
The castle keep was built, atop a possibly pre-existing mound, in what would become the more northerly part of Oswestry, with a probable inner bailey mainly on its east side. The curving shape of streets south of the motte and inner bailey outline a large outer bailey there; a north-south street roughly in the centre of this area was long known as Bailey Street. At its south end Bailey Street met the north-east corner of a large triangular area that served as the marketplace, its north side later known as Market Street. From the southern corner of this space, what was later known as Church Street ran southwards to pass by the east side of St. Oswald's before continuing out of the town. From the north-west corner of the triangle another street ran north-westwards out of the town. A street skirting the east side of the inner and outer baileys continued north-eastwards and south-eastwards beyond the town, in the latter case bound for Shrewsbury.
Early settlement may have been within the protection of the castle bailey, from which it spread beyond, so that the late thirteenth century town walls enclosed a much larger area (though not the as far south as the church). On the other hand, it is possible that early settlement, or that mentioned in William III Fitz-Alan's borough charter, was around the marketplace just outside the outer bailey, and that it later (probably once the town walls were in place) expanded into a redundant outer bailey, in which we find a 'New Street' running off Bailey Street. In either case, Leland perceived the former bailey area as the focus of the town in his day. In 1272 we hear of burgages inside the bailey and others outside it, and an extent made of the town in 1393 indicates burgages could be found on all of the streets within the town walls, as well as beyond the north-eastern gateway and along suburban Church Street. In 1276 there were 46 burgages, 127 by 1301, and 163 by 1393; while these figures may not be absolute, they seem to reflect expansion of the settled area of Oswestry, which was extending beyond the town walls by the close of the fourteenth century, a process that only ran out of steam in the sixteenth century.