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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 in the village, called Wotton House was remodelled in 1705 based on the design of Buckingham Palace. The manor was at that time (since the Norman conquest) the principal seat of the Grenville family, a notable member of whom was George GrenvilleGeorge Grenville ( October 14, 1712 November 13, 1770) was a British Whig statesman who served in government for the relatively short period of nine years (reaching the position of Prime Minister of Great Britain); Sir Robert Walpole served as Prime Minis, politician.

The house is still there, and is considered one of the finest examples of Georgian architectureGeorgian architecture is the name given in English-speaking countries to the classic architectural styles current between about 1720 and 1840, named after the four British monarchs named George. The Georgian styles succeeded the English Baroque of Sir Chr in the country.