Horace Walpole was fascinated with gothic architecture and created an extensive pseudo-gothic overlay to the Georgian foundations of his estate at Strawberry Hill. He was the first to use the term gothic in reference to literature. Uncertain how Otranto would be received, he prefaced the first edition with a story of having discovered it as a 16th century Italian manuscript. In fact, it was translated into Italian much later, by the father of John Polidori.

Byron had high praise for Walpole, writing: It is the fashion to underrate Horace Walpole; firstly because he was a nobleman, and secondly, because he was a gentleman; but, to say nothing of the composition of his incomparable letters, and of the Castle of Otranto, he is the Ultimus Romanorum, the author of the Mysterious Mother, a tragedy of the highest order and not a puling love-play. He is the father of the first romance and of the last tragedy in our language, and surely worthy of a higher place than any living writer, be he who he may. From the preface to Marino Faliero

Walpole's best known work, The Castle of Otranto, was inspired by a dream: all I could recover was, that I had thought myself in an ancient castle (a very natural dream for a head filled like mine with Gothic story) and that on the uppermost bannister of a great staircase I saw a gigantic hand in armour. In the evening I sat down and began to write, without knowing in the least what I intended to say or relate. The work grew on my hands, and I grew fond of it - add that I was very glad to think of anything rather than politics - in short I was so engrossed in my tale, which I completed in less than two months, that one evening I wrote from the time I had drunk my tea, about six o'clock, till half an hour after one in the morning, when my hand and fingers were so weary, that I could not hold the pen to finish the sentence, but left Matilda and Isabella talking, in the middle of a paragraph.

Otranto inspired Clara Reeve to write The Old English Baron which she felt improved on Otranto by toning down its excessive supernatural effects. The offended Walpole called her effort insipid.

Child prodigy Chatterton sent Walpole, now famous as the writer of Otranto, some of the Rowley poems in the hope of obtaining his patronage. Perhaps the first edition's pretense at antiquity made Chatterton believe Walpole would be sympathetic to a similar pseudo-medieval creation. At first Walpole was favorably impressed with the poems, but when he learned that Chatterton was a mere scrivener's apprentice and very poor, he became suspicious. Perhaps mindful of the criticism he had received for attempting to pass off Otranto as a 16th century work, he denounced Chatterton as a simple forger, and only returned the manuscripts after repeated pleas by Chatterton. Chatterton's desperate straits led him to commit suicide at only 17.

Walpole's aunt Dorothy was kept prisoner by her husband when he found out she had had a prior relationship with the notorious Lord Wharton. Dolly's death following a fall down a long staircase was considered suspicious and it is said her ghost still haunts Raynham Hall. Her portrait is in the section on Wharton.