<p>Coffeehouses played an integral role in the lives of a broad base of urban residents throughout the 16^th, 17^th, and 18^th centuries. While social and business historians examine how coffeehouses provided spaces to pursue social, economic, and political activities, a more general theory regarding why such organizations emerged remains under explored. This paper develops a framework based on entrepreneurship and institutions to explain the emergence of coffeehouses. Following the principles of entrepreneurship and institutional economics, they emerge when institutions encourage entrepreneurs to seek profit opportunities. Available historical and archival records about coffeehouses in the Near East and in England, provide ample context to examine these arguments and develop a more general, economic theory of coffee houses. Differences in institutions also explain how coffeehouses facilitate innovation in some areas, like in England, but less so in the Near East.</p>