Oxford in the 1960s - a hotbed of sex, drugs, revolution and rock'n'roll. But all those young people needed something to wear. Who would supply flowery pinafores for all those festivals of love? Enter Annabelinda, the shop in Gloucester Green which for 37 years has remained a beacon for those in search of original fashion. Now its founder, Belinda O'Hanlon, is throwing in the towel. At the age of 62, she has decided not to renew her lease at the end of the year, and the business is up for sale as a going concern.

Mrs O'Hanlon was 21 when she dropped out of her degree course at St Anne's College to set up the business, joining up with her friend Anita Woodhead to set up a sewing partnership. "We took a room in Park End Street, which was a converted Gents. We had a sign saying: 'Annabelinda makes clothes in a day'. We put velvet on the walls to hide the tiles, and people would come in with material to be made up into dresses.

"My husband had been thrown out of university for bringing his college into disrepute - he appeared in an article about smoking marijuana. It was front-page stuff, but that was what we were doing in the 1960s."

It was at that point that cannabis dealer Howard Marks entered the story, persuading Mrs O'Hanlon and Mrs Woodhead to move to bigger premises in Gloucester Green, formerly a dairy and milk-bar, with a huge walk-in fridge at the back.

Marks eventually received a 25-year jail sentence in America in 1990, but six years later he was freed on parole. In his autobiography, Mr Nice, he said that Annabelinda provided a "respectable front" for his new-found affluence from drugs.

Busy meeting growing demand for their flowery pinafores, the two women were totally unaware of the drug-smuggling business Marks was running from upstairs.

Mrs O'Hanlon said: "His first wife was with me at St Anne's and they had met this couple in Sussex and swapped wives. His second wife, Rosie Brindley, was from the Brindley fabrics family.

"She loved clothes and I think Howard wanted to impress her. The deal was that we would get the shop and Howard's partner Rosie would look after the shop while we made clothes, but she never did one day's work. I had the shop below and the top floor as a cutting room. Howard and Rosie lived on the middle floor.

"I was naive enough to think that if we put a bell on the door, I would be able to hear it and run down. I knew nothing. I didn't even know what an invoice was, and Howard and Rosie were just stoned the whole time."

He soon disappeared from the picture to pursue his career abroad. Meanwhile, her husband Redmond, now a renowned travel writer, was wrestling with his PhD. The ethos of the time is summed up by the tiny, wacky advertisements he wrote for the Observer and the news-sheet Daily Information: "Don't be Freudened of the Adler in the Grass (or even merely Jung-tied). Release his repressions in an Annabelinda nightdress."

At its high point from 1975-1980, Annabelinda employed 14 people directly and dozens of outworkers - many mothers of young children, beavering away on sewing machines at home. The dresses featured in glossy magazines, and were sold in an Annabelinda concession at Liberty's in Regent Street, London, as well as in Harrods and Lucienne Phillips of Knightsbridge, and shops in Nantucket, Oslo and Padua.

Despite the hippy world she moved in, Mrs O'Hanlon had a sound business head and has run it on her own since Mrs Woodhead moved abroad in the 1970s. "My dad was a farmer, and I had watched him doing the PAYE for the cowmen. At the beginning, I did it all myself, just to prove I could, but very soon got an accountant. In those days, business was basically common sense.

"Obviously as the business grew, I learned how to deal with things as we went along. If people came in at the right time, they were taken on."

Many of the staff became personal friends and several stayed for years. Marni Barnard, a former employee who has returned to help sell the business, said: "Everyone is on an equal footing. We all do a bit of everything. There is no hierarchy - it's all teamwork."

A certain amount of discretion was needed as word about Annabelinda spread among the rich and famous. "There have been very many royals and stars, but we always keep quiet about that," said Ms Barnard.

But in the 1980s, the business faced a crisis.

Cheap clothes started arriving from the Far East, with high street retailers suddenly able to copy designer clothes and produce them within weeks of catwalk shows, at less than a quarter of the price of clothes made in the UK.

Mrs O'Hanlon said: "We thought: 'How are we going to cope with this?'. It was very hard. Now we concentrate on individual clothes for special occasions and weddings. People have always got the money for the son's wedding, the daughter's wedding or the Palace garden party or Ascot. Being a small business, we could turn to whatever we wanted."

She added: "It was much more fun selling off-the-peg, because things moved quickly."

She recognises that life is not easy for small, independent retailers, with rents in city centres soaring out of their reach. However, with hindsight, she is pleased she resisted pressure from advisers - and her husband - to expand in the way that other kitchen-table designers like Laura Ashley did.

"I could never tally up what we would lose - our best thing, which was a personally-made clothes. We wouldn't have been able to control what we sold."