Abstract: This paper, a contribution to the 'proto-industrialisation' debate, examines the relative advantages of urban and rural locations for cloth manufacturing in later-medieval England and the Low Countries. From the 11th to the mid-14th century, when the English cloth trade began its seemingly inexorable expansion, the Low Countries had enjoyed a virtual supremacy in international cloth markets, then chiefly located in the Mediterranean basin. The traditional view has attributed the ultimate English victory to the advantages of a rural location, using cheap labour and water-powered fulling. The proponents of this view further contend that in late thirteenth-century England a new rural industry had displaced a centuries-old 'traditional' urban cloth industry through such superior cost advantages. To challenge that view, this paper puts forth the following propositions: (1) that England's traditional urban industry had declined, abruptly from the 1290s, chiefly because of steeply rising, war-induced, transaction costs in Mediterranean markets for its chief products: i.e. cheap and light fabrics, which they had sold as price-takers; (2) that the Flemish/Brabantine cloth industries, having had a similar industrial-commercial orientation, suffered from the same industrial crisis; and it more quickly responded by reorienting production, as price-makers, to very high-priced luxury woollens; (3) that rural locations were not always more advantageous, in lower labour and other costs; (4) that urban locations offered important benefits for the luxury-cloth production: a more highly skilled, productive, better regulated labour force; urban and guild institutions to enforce necessary quality controls and promote international reputations for high quality; (5) that England's cloth industry, when it revived from the 1360s, followed suit in shifting to more luxury-oriented exports, while gaining its chief advantages from the fiscal burdens imposed on high-quality wool exports to its overseas competitors; (6) that English export-oriented cloth production also remained more urban than rural until the late fifteenth century (for many complex reasons explored in this paper).