There is evidence of occupation from the Neolithic period in Cheddar. Britain's oldest complete human skeleton, Cheddar Man, estimated to be 9,000 years old, was found in 1903. Older remains from the Upper Late Palaeolithic era (12,000–13,000 years ago) have been found. There is some evidence of a Bronze Age field system at the Batts Combe quarry site. There is also evidence of Bronze Age barrows at the mound in the Longwood valley, which if man-made it is likely to be a field system. The remains of a Roman villa have been excavated in the grounds of the current vicarage.
The village of Cheddar had been important during the Roman and Saxon eras. There was a royal palace at Cheddar during the Saxon period, which was used on three occasions in the 10th century to host the Witenagemot. The ruins of the palace were excavated in the 1960s. They are located on the grounds of The Kings of Wessex Academy, together with a 14th century chapel dedicated to St. Columbanus. Roman remains have also been uncovered at the site. Cheddar was listed in the Domesday Book of 1086 as Ceder, meaning "Shear Water", from the Old English scear and Celtic dwr. As early as 1130 AD, the Cheddar Gorge was recognised as one of the "Four wonders of England". Historically, Cheddar's source of wealth was farming and cheese making for which it was famous as early as 1170 AD. The parish was part of the Winterstoke Hundred.
As early as 1527 there are records of watermills on the river. In the 17th and 18th centuries, there were several watermills which ground corn and made paper, with 13 mills on the Yeo at the peak, declining to seven by 1791 and just three by 1915. In the Victorian era it also became a centre for the production of clothing. The last mill, used as a shirt factory, closed in the early 1950s. William Wilberforce saw the poor conditions of the locals when he visited Cheddar in 1789. He inspired Hannah More in her work to improve the conditions of the Mendip miners and agricultural workers. In 1801, 4,400 acres (18 km2) of common land were enclosed under the Inclosure Acts.
Tourism of the Cheddar gorge and caves began with the opening of the Cheddar Valley Railway in 1869.
Cheddar, its surrounding villages and specifically the gorge has been subject to flooding. In the Great Flood of 1968 the flow of water washed large boulders down the gorge, washed away cars, and damaged the cafe and the entrance to Gough's Cave.
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