Magna Wenlock grew up in a shallow but marshy valley around the course of a brook that eventually ran into the Severn. In the Anglo-Saxon period Wenlock was a monastic centre that attracted modest lay settlement, and held enough lands in South Shropshire, centred on Much Wenlock, one of its demesne manors, that the large but fairly cohesive collection of estates was recorded in Domesday under its own heading. The minster churchyard is likely to have long been the site of market gatherings, so that the priors felt no need to purchase a formal licence once the licensing system was introduced. Wenlock was a liberty – that is, it and its tenants were free from most secular dues or obligations – with the status of a hundred (known as Bourton) from 1198, and from 1265 exemption from tolls of various kinds. What was originally a double monastery founded by a Mercian princess was re-founded by Earl Roger de Montgomery ca. 1080 as a Cluniac priory; it was for much of the Middle Ages one of the wealthiest monastic houses in Shropshire.

It is hard to say whether the lay settlement there might be considered urban prior to the re-foundation. Wenlock was treated as a borough in the context of the eyre of 1203, and in 1247 it again claimed to be a borough, with 39 burgesses paying an annual burgage rent of 1s. and 8 other free men. The post-Conquest planned town appears to have developed in phases between the twelfth and fifteenth centuries. However, the royal charter of 1198, granting the priory hundredal jurisdiction over its estates (that is, independence from the courts of shire and other hundreds), and its own leet court, must have set the stage for establishment of a borough within the priory estates, and later royal grants were mainly economic privileges for the priory and its tenants. That the burgesses had commercial privileges is indicated from a case in 1333 of a mercer from outside Much Wenlock who paid the prior a tenser's fee for the right to live and trade in the town. The burgesses had a sufficient sense of their privileged status and a sufficient degree of communal organization to be able, in 1247, to uphold, through the courts, limitations on their tenurial obligations, against what they considered unreasonable demands and exactions of the prior, such as a toll on brewing.

While retaining the conservative policy towards urbanism that is a characteristic of ecclesiastical lordship of towns, the priory gave its manorial town a privileged position within its liberty, and by 1272 the town had its own court with leet jurisdiction, with two major sessions (great courts) each year whose business included the assize of bread and ale, supplemented by intermediate sessions held at need, but roughly every three weeks. By the early fourteenth century the same privilege had been given to the priory's other manorial town, at Madeley; one of the streets departing from Wenlock's marketplace headed for Madeley and Shifnal. 1272 also saw the townsmen of Much Wenlock represented at the assizes by their own jury, as distinct from the jury of the liberty as a whole.

Wenlock benefited from a major medieval route passing along its edge; this offered connections to Bridgnorth and Shrewsbury, and beyond that to Worcester, Bristol, Chester and London. At some time – conceivably in connection with the emergence of the town – the road was diverted, on its approach from Shrewsbury, to pass along Wenlock's main street.

Wenlock's market is mentioned in 1224 when the king (probably at the prior's request), then visiting Shrewsbury, ordered the sheriff to oversee the market day being changed, in compliance with papal prohibition of marketing on the day of worship, from Sunday to Monday. Three years later Prior Umbert thought it advisable to formalize this change by obtaining a royal licence for the Monday market along with instructions to the sheriff to ensure that the market was held; that business was pursued in conjunction with obtaining confirmations from Henry III (who had just emerged from his minority) of charters of liberties granted the priory by Richard I and with acquiring a market licence for the priory's manor of Eaton-under-Heywood, which was several miles away from Much Wenlock and presumably considered complementary rather than competitive, for its market was to take place on Thursdays.

The prior's actions concerning Much Wenlock's market might suggest the townsmen objected to a change that inconvenienced them, or perhaps they were generally resistant to the prior's authority. More likely, the prior was only trying to solidify the abbey's claim to hold a market, and licence for a fair was also confirmed in 1227, the prior claiming to have had a royal grant of it in 1138. However, another royal writ, obtained by the prior at the same time, ordered the sheriff to support the prior in levying an aid on his tenants that would suffice to cover the costs of the franchises now obtained, and the prior may have anticipated that this move would not prove popular. As at Madeley, a quo warranto proceeding of 1292 subjected the market and fair at Much Wenlock to a challenge that was easily surmounted upon presentation of the 1227 charter. Not that those institutions appear to have been yielding much profit to the priory; a valuation made in 1291 of its revenues from Wenlock estimated the combined worth of fair, market, and town court as a meagre £2; the lease or rent of four mills there yielded almost twice that. That some of these figures may be standardized approximations is suggested by a further statement of revenues in 1379, which included 6s.8d from market tolls over the course of a year, 10s. from the three-day fair, and £1 3s. 4d. from court profits, while the income from six mills was now less than that from the earlier four.

Saxon settlement is suspected to have been to one side of Barrow Street (a south-east/north-west through-road named for the hamlet to which it led, just outside the town), near what is thought the site of the minster church, which would, in the early twelfth century, be separated from the monastery precinct and be used later in the century for building a parish church; the brook already mentioned would have created a western boundary for this settlement. Two marketplaces have been identified in Much Wenlock, though it is not clear which is the original. One was a funnel-shaped space, sufficiently close to the priory gateway to prompt an assumption that it post-dated the re-foundation; its large size (before encroachment) and later name of Bull Ring suggests it may have been, or become, a livestock market. The second marketplace, though only just round the corner from the Bull Ring, was in a widened part of Barrow Street part of whose north-western stretch (now Wilmore Street) ran alongside the churchyard – suggesting a possible location for the Sunday market – to reach a T-junction with the High Street. This could indicate it the older of the pair, related to early settlement, if the parish church did indeed supersede the Anglo-Saxon minster. The prior had a hall in the High Street that seems to have functioned as the market tolbooth.

The new town may have been established around this T-junction; plots fronting the north-west side of the High Street stretched to a Back Lane that followed the route of the brook. Or, another model of development suggests, the town may have begun before mid-twelfth century along part of the through-road north of Bull Ring, and been expanded later further south, beyond the churchyard, with the High Street, plus a second, parallel street further south, an even later (though still medieval) phase of development. It is also conceivable that the stretches of Barrow/Wilmore Street on either side of the High Street represent the earliest phase of development – Jane Croom [The pre-medieval and medieval human landscape and settlement pattern of south-east Shropshire, unpublished Ph.D thesis, University of Birmingham, 1989, p.268] felt the layout of burgage plots on either side of Barrow Street to be especially well-preserved. These variant models indicate how tentative is our knowledge of the growth of many new towns, in the absence of major archaeological investigation or detailed documentary records from the early period when most new towns came into being.

Despite the unimpressive priory profits from commerce, there is some evidence for growing prosperity at Much Wenlock in the fourteenth century, though population growth was modest and Wenlock never became more than a medium-sized market town. A local cloth industry appears partly responsible for economic viability; the leather trades are also in evidence, as was common in many medieval towns. However, it was not until 1468, when the Crown had obtained control over appointment of the prior, that the town received formal recognition from the king as a liber burgus and was incorporated, although many of the privileges granted then were those previously enjoyed by the priory estates (e.g. toll exemptions). The market and fair, as well as some of the legal jurisdiction of the manorial court, were then transferred from priory to borough – that is, into the hands of the townsmen. The priory interpreted the charter as making the borough co-extensive with its liberty and the prior remained the immediate lord of the town, retaining a measure of control over its administration, until the Dissolution. The original urban component remained essentially a small town, with neither its market nor fair of any great importance; its expansion after the close of the Middle Ages was not great, mainly along the High Street, and in the form of infilling of medieval plots.