The Castlederg village gained prominence in history with the discovery of the Derg Castle in the late fifteenth century. The Annals of the Four Masters discovered this ancient estate and stated an extensive description of the masonry of the castle and its thatched roof. This description made the castle to be known as a castle with a thatched roof. The castle was captured by Hugh O’Neill, which made it hold a prominent position in the Annals. However, Hugh O’Donnell, who was a chieftain from neighbouring Donegal, took over the control and power of the castle after thirty years. After this invasion, until the 16th century, numerous battles were fought between these two warring families over the possession and ownership of this majestic estate.
Sir John Davies erected the Derg Castle on a site, which was originally occupied by O’Neill Tower House. This area of 2,000 acres of land, which was then the small village of ‘Derg Bridge’, was granted to Sir John Davies by King James I. In 1479, Henry OG O’Neill marched into Tirconnell (Donegal) and after succeeding over O’Donnell took over Derg Castle. The defensive wall (Bawn), surrounding this ancient Irish monument, is believed to have been a refuge for planter families during the 1641 rebellion. After the attack by Sir Phelim O’Neill, this site was rendered unfit for occupation. Sir Phelim O’Neill, during the rebellion of 1641, laid siege to the castle. After being defeated in his bid, Davies along with his force flew from Castlederg.
This historic site later initiated rivalry between the two clans, which mounted from cattle-raiding to full-scale warfare. This also involved the Scottish mercenaries. Folklore legend states that a tunnel has been built from castle under the River Derg. This tunnel was built to provide an easy escape during the threat of invasion or siege. According to the legend, a piper, having defied his accompanying forces, passed down into this tunnel. In order to be tracked whenever needed, the piper kept on playing the music. As he proceeded further in the tunnel, the music disappeared along with the piper. Since then it is said that the tunnel caved in on the piper. This tunnel is now called the Castle Hole.
Today, the ruins of the castle comprise a rectangular bawn with square flankers on all sides of the corner. Providing a point for artillery, the flankers situated by the riverside were open-topped. On the other side, the north side flankers were properly roofed, thus forming the part of the living area.