This study investigated the agglomeration process of the towel industry in the Daejeon and Chungcheong regions, which are located in the mid-western part of South Korea, focusing in particular on industrial restructuring. Moreover, it aimed to identify the spatial features of the towel industry by analyzing the subcontracting linkages and to discover the implications of such linkages on government policy. The towel industry in the Daejeon and Chungcheong regions began to grow from the end of the Korean War when textile technicians from North Korea settled down in this area, spreading their techniques and know-how within the region. Later, in the 1980s, the industry underwent restructuring when companies within the region strengthened their linkages through corporate specialization based on the concept of social division of labor. Accordingly, the industrial linkages and linkage spaces, as well as characteristics of the industry, should all be considered to develop and implement policies for the regions of the towel industry.