The placename "Lodelowe" was in use for this site before 1138 and comes from the Old English "hlud-hlǣw". At the time this section of the River Teme contained rapids, and so the hlud of Ludlow came from "the loud waters", while hlǣw meant "hill" or tumulus. Thus the name Ludlow describes a place on a hill by the loud waters. Some time around the 12th century weirs were added along the river, taming these rapid flows. The hill is that which the town stands on, and a pre-historic burial mound (or barrow) which existed at the summit of the hill (dug up during the expansion of St Laurence's church in 1199) could explain the tumulus variation of the hlǣw element. Ludford, a neighbouring and older settlement, situated on the southern bank of the Teme, shares the hlud ("loud waters") element.
Ludlow has a name in the Welsh language, Llwydlo.
Though the town became known as Ludlow, Fouke le Fitz Waryn (a 13th-century poem) states that it was called Dinham "for a very long time". The western part of the town immediately south of the castle retains this name, and many historians assume this settlement is Anglian or Saxon in origin, with its etymology meaning a settlement (-ham, Anglo-Saxon) by the [hill]fort (din, Welsh). The castle was originally called Dinham Castle, before it took on the name of Ludlow. A possible alternative is that Dinham takes its name from Josce de Dinan, a major landowner in the area in the 12th century, though this is regarded as erroneous on the balance of evidence with the similarity being a coincidence.