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 Grenville, politician.
The house is still there, and is considered one of the finest examples of Georgian architecture in the country.