European papermakers were the first to use watermarks. An offshoot of the guild system, the watermark served as a means of identifying the paper with the members of the trade organization who manufactured it. Just as with trademarks stamped into silver or firearms, the watermark indicated that the paper was the product of a trained artisan's labors.

Wire watermarks are formed by attaching a wire pattern to the mesh of a paper mold. When the paper slurry is drained of its water, the layer of residual fibers over the raised wire pattern is thinner than the rest of the sheet. When pressed and dried, these thinner areas result in patterns that only show clearly when held up to the light.

Light and shade watermarks are formed from relief sculptures impressed into the woven wire fabric of the paper mold. The image to be duplicated is first carved in wax, and the wax model is used to cast male and female plates. Heated wire fabric is placed between the two plates, which are pressed together; this causes the wire fabric to conform to the shape of the image. Paper cast on this type of mold is thinner in the raised areas of the image and thicker in the recessed areas, which creates a light and shade design.   

The watermarks pictured are a portrait of Queen Elizabeth II from the time of her coronation in 1953 and a Madonna and Child watermark by Pietro Miliani Fabriano.

The invention of the paper machine created a need for a way to make watermarks on the continuous roll of paper. The "Dandy-Roll," probably invented around 1825, was conceived to make an impression like a watermark by rolling over the damp paper just coming off the wire cloth of the paper machine. Dandy rolls can be of "laid" or "wove" design and can contain simple or intricate watermarking designs.