I made this Wool Cloth Farming guide to help out players who want to farm the cloths instead of buying them from the Auction House. I decided to search for places with high density of mobs which I can kill and drop [Wool Cloth]. I traveled around Azeroth, and after a while I made a list of places.
You will notice that you get a lot of Linen Cloth too while farming, this does not mean that these places are bad for farming Wool Cloth, usually every mob drop both Linen and Wool Cloth.
I labeled the sections as Horde or Alliance, but this does not mean anything. If your level is high enough, you can go to all of these places. Actually, Wetlands is closer for high level players if you can use the Twilight Highlands portal.
Wetlands - Alliance or higher level horde players
Best place to farm Wool Cloth is on the road east of Greenwarden's Grove in Wetlands. There is a fight going on there between Dragonmaw Whelpstealers and Ebon Slavehunters. Both of these mobs are hostile and drop Wool Cloth, and their respawn rate is extremely quick.
Hillsbrad Foothills - Horde
Stormpike Engineers on Gavin's Naze in Hillsbrad foothills is a great place to farm Wool Cloth. They respawn almost instantly, you'll never run out.
If your level is high enough, you can farm Wool Cloth in Shadowfang Keep which is located near the borders of Gilneas in southern Silverpine Forest.
After you cleared the instance, go outside and reset it by right clicking over your own portrait then click the "Reset all instance" button. This restarts the whole instance and all mobs will be back. You can only do 10 instance runs in an hour, this means sometimes you might have to wait a bit.
Once you are done farming Wool Cloth, visit my Silk Cloth farming guide.