The village first flourished with the quarrying of slate. Kirkstone Green Slate Quarries is up the road at Skelwith Bridge. Later a gunpowder manufacturing business brought workers to the village. Coppiced juniper wood was turned into charcoal needed as one of the ingredients in producing gunpowder. Saltpetre was brought by rail to Windermere to transport to Elterwater, and sulphur was also imported. The ingredients were mixed and ground to produce the gunpowder. Six water wheels turned by the River Brathay provided an economic means of power. The works were in production from 1824 until the early 1930's and are now a holiday complex.
Elterwater caters to holidayers with a youth hostel, shops, and the popular Britannia pub (a former17th century farmhouse). A terrace of cottages made of the local green slate line the small green in the village centre. Morris dancers show off their skills in the summer.
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