The prototypical pencil may have been the ancient Roman stylus, which was a thin metal stick, often made of lead and used for scratching on papyrus. The word pencil comes from the Latin word penicillus which means "little tail".
Some time prior to 1565 (some sources say as early as 1500), an enormous deposit of graphite was discovered at the site of Seathwaite Fell near Borrowdale, Cumbria, England. The locals found that it was very useful for marking sheep. This particular deposit of graphite was extremely pure and solid and it could easily be sawed into sticks. This was and remains the only deposit of graphite ever found in this solid form. Chemistry was in its infancy and the substance was thought to be a form of lead. Consequently it was called plumbago (Latin for "acts like lead"). The black core of pencils is still called "lead", even though it does not contain the element lead.
The value of plumbago was soon realised to be enormous, mainly because it could be used to line the moulds for cannon balls, and the mines were taken over by the Crown and guarded. Graphite had to be smuggled out for use in pencils. Because the plumbago was soft, it required some form of case. Plumbago sticks were at first wrapped in string or in sheepskin for stability. The news of the usefulness of these early pencils spread far and wide, attracting the attentions of artists all over the known world.
Although deposits of graphite had been found in other parts of the world, they were not of the same purity and quality as the Borrowdale find, and had to be crushed to remove the impurities, leaving only graphite powder. England continued to enjoy a monopoly on the production of pencils until a method of reconstituting the graphite powder was found. The distinctively square English pencils continued to be made with sticks cut from natural graphite into the 1860s. Today, the town of Keswick, near the original findings of block graphite, has a pencil museum. The first attempt to manufacture graphite sticks from powdered graphite was in Nuremberg, Germany in 1662. They used a mixture of graphite, sulfur and antimony. Though usable they were inferior to the English pencils.
It was the Italians who first thought of wooden holders. An Italian couple in particular named Simonio and Lyndiana Bernacotti were believed to be the ones to create the first blueprints for the modern carpentry pencil for the cause of being able to mark their carpentry pieces, however, their version was instead a flat oval, more compact type of pencil. They did this at first by hollowing out a stick of juniper wood. Shortly thereafter, a superior technique was discovered: two wooden halves were carved, a plumbago stick inserted, and the two halves then glued together—essentially the same method that is in use to this day.
English and German pencils were not available to the French during the Napoleonic wars. It took the efforts of an officer in Napoleon's army to change this. In 1795 Nicholas Jacques Conté discovered a method of mixing powdered graphite with clay and forming the mixture into rods which were then fired in a kiln. By varying the ratio of graphite to clay, the hardness of the graphite rod could also be varied (the more clay, the harder the pencil, and the lighter the color of the mark). This method of manufacture remains in use today.
America colonists imported pencils from Europe until after the American Revolution. Benjamin Franklin advertised pencils for sale in his Pennsylvania Gazette in 1729, and George Washington used a three-inch pencil when he surveyed the Ohio Territory in 1762. It is said that William Munroe, a cabinetmaker in Concord, Massachusetts, made the first American wood pencils in 1812. If so, this was not the only pencil-making in Concord. According to Henry Petroski, transcendentalist philosopher Henry David Thoreau discovered how to make a good pencil out of inferior graphite using clay as the binder; this invention was prompted by his father's pencil factory in Concord, which employed graphite found in New Hampshire in 1821 by Charles Dunbar.