This "Crown & CA" (for "Crown Agent") watermark was standard for postage stamps of the British colonies from the 1880s to the 1920s.

A watermark is a recognizable image or pattern in paper that appears lighter when viewed by transmitted light (or darker when viewed by reflected light, atop a dark background). A watermark is made by impressing a water coated metal stamp or dandy roll onto the paper during manufacturing. Watermarks were first introduced in Bologna, Italy in 1282; they have been used by papermakers to identify their product, and also on postage stamps, currency, and other government documents to discourage counterfeiting.

The dandy roll is a light roller covered by material similar to window screen that is embossed with a pattern. Faint lines are made by laid wires that run parallel to the axis of the dandy roll, and the bold lines are made by chain wires that run around the circumference to secure the laid wires to the roll from the outside. Because the chain wires are located on the outside of the laid wires, they have a greater influence on the impression in the pulp, hence their bolder appearance than the laid wire lines.

Elephant head watermark used on early stamps of India.

This embossing is transferred to the pulp fibres, compressing and reducing their thickness in that area. Because the patterned portion of the page is thinner, it transmits more light through and therefore has a lighter appearance than the surrounding paper. If these lines are distinct and parallel, and / or there is a watermark, then the paper is termed laid paper. If the lines appear as a mesh or are indiscernible, and / or there is no watermark, then it is called wove paper.

The above is true for line drawing watermarks, but there is another type called the shaded watermark. A shaded watermark, first used in 1848, incorporates tonal depth and creates a greyscale image. Instead of using a wire covering for the dandy roll, the shaded watermark is created by areas of relief on the roll's own surface. A watermark is very useful in the examination of paper because it can be used for dating, identifying sizes, mill trademarks and locations, and the quality of a paper.

Watermarks vary greatly in their visibility; while some are obvious on casual inspection, others require some study to pick out. Various aids have been developed, such as watermark fluid that wets the paper without damaging it.

Encoding an identifying code into digitized music, video, picture, or other file is known as a digital watermark.

Watermarks on postage stamps

In philately, the watermark is a key feature of the stamp, and often constitutes the difference between a common and a rare stamp. The "classic" stamp watermark is a small crown or other national symbol, appearing either once on each stamp or a continuous pattern. Watermarks were nearly universal on stamps in the 19th and early 20th centuries, but generally fell out of use and are not commonly used on modern issues.

Some types of embossing, such as that used to make the "cross on oval" design on early stamps of Switzerland, resemble a watermark in that the paper is thinner, but can be distinguished by having sharper edges than is usual for a normal watermark.

Watermark is also the name of an album by Enya.