There are three basic ways to create rugs: by hand knotting, by hand tufting or by machine.

Hand knotted rugs are made on a vertical frame called a hand knotting loom. Columns of threads are stretched from the top to the bottom of the loom. These are called the warp threads and are the foundation of the rug. They also form the fringe ends of the rug and are very important to its longevity. Hand knotted rugs are produced using ancient techniques, have unlimited design and color variations. You can spot a hand knotted rug if the same pattern that is on the back is on the front. You can tell the quality of the hand knotted rug by the knot count. Generally, the more knots per square inch, the higher the rug quality. Bear in mind that the wool, design, luster and dye method all have an affect on the rug as well.

Hand tufted rugs (also called hand made) are made by punching individual yarns through a fabric sheet using a device called a "tufting gun". Once the rug has been completed a second fabric is glued to the back to hold the yarns in place. Hand tufted rugs required more time to produce, generally contain higher quality materials and can be more detailed. Hand tufted rugs almost always have a plain backing or show a glue residue on the back.

Machine made rugs, are produced by a electronically driven machine whose pattern is controlled by computer or a punch card system to produce a repetitive pattern. Although not as detailed or colorful as handmade or hand knotted rugs, machine made rugs can be produced quickly and for a lower price.