The initial 1764 edition was titled in full The Castle of Otranto, A Story. Translated by William Marshal, Gent. From the Original Italian of Onuphrio Muralto, Canon of the Church of St. Nicholas at Otranto. This first edition purported to be a translation based on a manuscript printed at Naples in 1529 and recently rediscovered in the library of "an ancient Catholic family in the north of England". This "ancient Catholic family" is possibly the Percy family, as Walpole would have known the Duke of Northumberland and his wife Elizabeth Percy, though this is not proven. The Italian manuscript's story, it was claimed, derived from a story still older, dating back perhaps as far as the Crusades. This Italian manuscript, along with alleged author "Onuphrio Muralto", were Walpole's fictional creations, and "William Marshal" his pseudonym.
In the second and subsequent editions, Walpole acknowledges authorship of his work, writing: "The favourable manner in which this little piece has been received by the public, calls upon the author to explain the grounds on which he composed it" as "an attempt to blend the two kinds of romance, the ancient and the modern. In the former all was imagination and improbability: in the latter, nature is always intended to be, and sometimes has been, copied with success...". There was some debate at the time about the function of literature, that is, whether or not works of fiction should be representative of life, or more purely imaginative (i.e. natural vs. romantic). The first edition was well received by some reviewers who understood the novel as belonging to medieval fiction, "between 1095, the era of the First Crusade, and 1243, the date of the last", as the first preface states; and some referred to Walpole as an "ingenious translator". Following Walpole's admission of authorship, however, many critics were loath to lavish much praise on the work and dismissed it as absurd, fluffy, romantic fiction.
In his 1924 edition of The Castle of Otranto, Montague Summers showed that the life story of Manfred of Sicily inspired some details of the plot. The real medieval castle of Otranto was among Manfred's possessions.