The village of Downton, or Dunton, was the chief component of a like-named large estate and hundred built up by the cathedral of Winchester through grants of Anglo-Saxon kings; the charter by which a late seventh century Wessex king granted Downton manor to Winchester is spurious, but what it records is plausible. The area had seen settlement in Roman and pre-Roman times. By the twelfth century a number of relatively populous villages ringed Downton village, which may long have served them as a market centre and as, once the episcopal manor was created, an administrative base, that manor being the principal one of the hundred and meeting-place of its folkmoot; the size of this village's population, and likelihood of occupational heterogeneity there, suggest it could be considered proto-urban. It stood near the River Avon, a few miles south of Old Salisbury, but with little other competition close at hand, except perhaps the manorial market of Fordingbridge in Hampshire, which Downton managed to out-compete. However, the relocation of cathedral and town from Old to New Salisbury brought strong competition a little closer to Downton, and eventually took its toll on Downton's market.

The Saxon settlement grew up on the east bank of the river, probably around an ancient crossroads – a north-south track keeping above the Avon floodplain, and an east-west route across the Downs – and in the area between the church (possibly a minster), towards the north, and the bishop's manor-house well to the south. The village was fairly sizable by the time of Domesday. The manor-house was expanded into an episcopal palace, probably not long after the Conquest and, during the war between Matilda and Stephen, a ringwork fortress was constructed beside it, attributed by Winchester annals to Bishop Blois in1138 [J.K. Floyer, "Passages in the History of Downton A.D. 1138-1380", Wiltshire Archaeological and Natural History Magazine, vol.29 (1897), p.102 ]; later reference to it as The Moot has been interpreted as meaning an ancient meeting-place or a motte and bailey castle – both possible, but neither supported by substantive evidence. This fortification was of little consequence, perhaps abandoned, after the dynastic conflict ended – certainly there is no reason to think that this 'castle' was instrumental in the development of the town, and it may in fact have been no more than a fortified rebuild of the episcopal residence.

Diversion of the river to power mills created one or more islands (up which settlement spread) and it was on their far side, west of the river, that Peter des Roches, Bishop of Winchester, founded a borough around 1208, laying out plots to be held by burgage tenure; the borough would have its own courts, but aspects of its administration remained manorial and it did not, during the medieval period, acquire chartered liberties of self-government. In the thirteenth century the two administrative wards into which the borough was divided corresponded to the original village and the new burghal foundation, which could later be referred to as east and west boroughs, not amalgamated administratively until ca.1600. As a borough Downton was summoned to send representatives to at least some parliaments from 1275 onwards; these were presumably burgesses, although the right to choose them may have extended to all freeholders, not just burgage tenants.

Beresford ["The Six New Towns of the Bishops of Winchester, 1200-55", Medieval Archaeology, vol.3 (1959), 193] considered Downton's plan basically the same as that of New Alresford, founded by the previous bishop: a single straight street, wide enough to accommodate a market, stretching from a river crossing to a junction with a through-road (which in Downton's case ran between Salisbury and Fordingbridge). The area of the marketplace is today known as The Borough. Winchester cathedral's account roll for 1208/09 recorded 19 plots in the 'new market' paying rent, and 11 others as having been let that year (presumably with respite from rent to allow the tenants to invest in house-building); by 1216 the number had grown sufficiently that the compiler of the account distinguished these items under their own heading of Burgus de Downton, and by the 1230s around 120 plots had found tenants, thus generating an annual revenue in rents which far exceeded the rental income (6s. and 12 hens) from the agricultural land allocated to the new town. Although planted at a distance from the pre-existing village, the new town was not given its own church, but was expected to use that of the village (although this may have been enlarged). Up to at least the late sixteenth century bureaucrats continued to understand a separation between the burgus and the larger village on the east bank of the river

Neither market nor fair licence is known for Downton, but the earliest mention of the borough refers to it as a 'new market'; we have reference in 1249 to fairs held at Downton. In 1289 the bishop claimed to have there a Thursday market and August fair. The former is again heard of in late fourteenth century and was one of the region's markets specifically identified as a destination for the wool or grain of several manors. The latter (which had been documented in 1249) is not and perhaps died away, for in the seventeenth century new fairs were licensed.

Little is known of medieval industry there; leather-working is indicated but, apart from the fact that the population included some weavers in the early thirteenth century and tailors in the fifteenth, and that mention of a fulling mill in 1215 makes it one of the earliest known in the county, cloth-making is not greatly in evidence, though likely to have played a growing part in the local economy. It seems the new borough at Downton proved unable to build on its initial success, judging from its low tax assessments in the fourteenth century; periodic flooding of the marshy Avon may have been part of the problem, as well as the reduction in the local customer base as the Black Death depopulated the surrounding villages. The episcopal palace ceased to be used from the early fifteenth century, depriving the townspeople of that source of business. Later in the century we see that settlement has spread at its east end and the focus of urban life may have shifted to the east bank of the river, where a High Street is heard of in 1452. This shift – or perhaps a retrenchment – is also reflected in the absence of significant encroachment on the borough marketplace and the fact that many of the burgage plots remain discernible to an extent that is exceptional. Nor did the town expand much from its axial street, and the number of burgages in 1630 was close, at 127, to the original size of the planned town.