The town of Covilha in east-central Portugal has been involved with the manufacture of woollen cloth for more than three centuries. An enterprise producing high quality fabrics was set up under the guidance of English manufacturers in 1667, but encountered difficulties after 1703 when English cloth was allowed into Portugal without tariff duties. The industry was revived in the mid-eighteenth century under the guidance of the Marquis de Pombal who set up the Royal Textile Factory, whose dyehouse is the location of the museum. It was established between 1986 and 1992 by the University of Beira Interior.
In the 1860s about 7,000 people were employed in the local woollen cloth factories, all but one of which were water-powered. In 1947 some 142 textile enterprises were active in the region and several historic factory buildings remain in the nearby villages of Tortozendo and Unhais de Serra.