Following the submission of a planning application for various alterations and extensions to the property at Pencil Mill, Watermillock, Penrith, Cumbria, an archaeological watching brief was requested on the groundworks adjoining the house as a condition on the application. Greenlane Archaeology was commissioned to carry out the watching brief, which was carried out in February 2023. The wider area is rich in archaeological remains dating from the prehistoric period onwards, with the site within the parish of Greystoke, and Watermillock recorded from at least the medieval period, although the name is older. The site is predominantly of archaeological interest because it at one time, as the name suggests, was home to a pencil mill. However, a mill known as Knott Mill was apparently present on the site from at least the 17th century. The pencil mill only seems to have operated for a short time in the mid to late 19th century, and probably made 'black lead' pencils encased in timber; the mill also evidently made bobbins. By the later 19th century, the site was just used as a farm. The watching brief revealed that deposits were very shallow on the south side of the house, with fractured slate bedrock exposed a short depth below the surface. No features or deposits of archaeological interest were revealed. While the results of monitoring the groundworks did not reveal anything of use in further interpreting the site a reconsideration of the documentary sources have provided some further explanation for how the site worked. It seems unlikely, given its position and form, that the current house was actually the mill itself. It is more likely that this was in fact the small building to the east.