In a room piled to the ceiling with fine suiting fabrics, Richard Martin is hurriedly gluing together folders of samples that must be rushed by courier to a country house near Milan. There Italian wholesalers will choose the cloth for menswear that will appear in shops not this winter, but the next. He hopes to sell around £1m of cloth to the Italian market this season, despite stiff competition from Italy's own highly-regarded textile industry.

"People in Italy and Japan have the biggest interest in high quality, innovative cloth," he said.

Far fewer British people spend a significant part of their income on fine fabrics, and Internet shopping means that clothing is increasingly sold on lifestyle and image, because sleeve feel' means nothing in a virtual shop. Following the closure of Early's blanket factory in Witney in 2002, Mr Martin's Filkins-based company, Cotswold Woollen Weavers, became the only place in the Cotswolds where wool textiles are still made.

In the heyday of the wool industry there were hundreds of mills, but as fashions changed and manufacturing moved overseas, they all closed.

Mr Martin and his wife Jane defied the trend, setting up the company in 1982 and building it up into a thriving, diverse business. They now employ 35 people and sell to some of the best-known fashion houses in the world, including Prada, Ralph Lauren, and Burberry.

Being a small mill actually has advantages, because it allows them to be versatile. Mr Martin explained: "Big manufacturing plants have become very lean and efficient by concentrating on what they do best -producing large quantities of cloth, very fast."

But it is too expensive to set up big machines to produce short runs, for example, of sample fabrics like those he was sending to Italy.

Some of the textiles are made at a larger sister factory in Huddersfield, under a brand name bought from a venerable Stroud-based company, Marling and Evans' West of England. At Filkins, cloth is woven on hulking, oily, Dobcross looms. Originally designed in the mid-19th century, these probably date from 1918-26.

"That says something for the engineering! They are amazing beasts, basically four-and-half tons of cast iron with leather and wood and string," said Mrs Martin.

"The weaving is the quick bit," she explained, because setting up the looms is time-consuming and complicated.

"The warping mill, made in 1885, is my favourite. It's like a creaking ship under full sail."

The warp (lengthwise) threads are wound under tension around the mill, and dropped through a hatch to the loom.

Many other processes are involved, including the carding, spinning, twisting, coneing, and hanking of the wool, and the post-weaving mending, washing, and finishing - fluffing up the threads to make a blanket, or pressing them down for fine suiting.

There is a machine called a scribbler' that separates wool into fibres, and rollers with evocative names, including swifts', workers', strippers', lickers-in', nippers', and fancies'. The company uses fine sheep wool, mohair and cashmere from goats, silk, and cotton.

"The wool comes from as near as that field over there, and as far as Australia," said Mr Martin.

They buy British wool from ancient breeds, such as the piebald Jacob sheep, whose fleece can be used for undyed blankets, and the Cotswold sheep, once dubbed the Lion of the Cotswolds.' Having bought a woollen mill in Wales in 1976 to run as a museum, Mr Martin gradually began to learn how to use the machinery. He also taught himself about textile design and now designs many of the fabrics himself.

As well making cloth for the fashion industry, the firm makes it for re-enactors' costumes.

"It's a huge market - the people who dress up as soldiers!" said Mr Martin. "We've made French WWI cloth and German WW2 cloth, even cloth for Vikings'. Enthusiasts find archaeological remains and that's what they want to wear."

CWW has also made trouser material for American Civil War re-enactors. Remarkably, Marling and Evans made some of the original uniforms.

"There's also a whole new genre' of people who dress up as film characters," he added. "Lots of people want the coat worn by Richard E Grant in Withnail and I. We've done cloth for Star Wars characters. Some is high tech; some is thick, peculiar, lumpy cloth."

At Filkins there are two shops selling upholstery fabrics, tailored clothing, and blankets, all made on the premises, including the tartan Lady Borrowdale's Gift', which is associated with a romantic legend about Bonny Prince Charlie.

The mill, housed in impressive 18th century farm buildings, is run as a working museum, open every day. Visitors include local people and tourists who want to learn more about the time when it was said: "half the wealth of England rides on the back of the sheep".

Contact: Cotswold Woollen Weavers, 01367 860 491; www.naturalbest.co.uk