The word 'worsted' originates from the name of the English village of Worstead, which was a major center for the manufacture of this type of woolen cloth in the Middle Ages. The place name itself is of Old English origin, likely meaning "enclosed settlement" from a personal name and the suffix '-stead'. The textile's name, therefore, follows a common pattern where a product becomes globally recognized by its place of origin. Over centuries, the term shed its geographical capital letter and evolved into a standard technical term in the textile industry, specifying a particular method of preparing wool and the fabric produced from it.

The word is a toponym, derived from the name of the village of Worstead in Norfolk, England. It does not contain separable morphemes in the modern English sense; its structure is that of a proper noun adopted as a common noun.