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The village name 'Wotton' is Anglo Saxon in origin, and means 'farm near a wood'. It was recorded in the Domesday Book of 1086 as ''Oltone'', though earlier (in 848 ) it was recorded in the Anglo-Saxon Chronicle as ''Wudotun''. The affix 'Underwood' was added later to distinguish the village from other places also called Wotton. The affix means 'near the wood' and refers to the villages proximity to the ancient Bernwood Forest .

The Manor House in the village, called Wotton House, was remodelled in 1705 based on the design of Buckingham Palace . The manor house was at that time (and since the Norman Conquest ) the principal seat of the Grenville family, a notable member of whom was George Grenville , politician. The house is still there, and is considered one of the finest examples of Georgian Architecture in the country.

The actor John Gielgud lived for many years in the village until his death there.

The Brill Tramway , originally known as the Wotton Tramway and, from 1899, part of the Metropolitan Railway , which served the area, closed in 1935.