Video report by Rachel Bullock
Flying Colours in Knaresborough has a Royal Warrant, and workers have produced flags for the Royal Family since the turn of the century.
Owner Andy Ormrod said: "We are absolutely honoured that we've manufactured it here in Knaresborough."
The flag, known as the Royal Standard, is split into quarters which represent different parts of the UK.
England is represented by three lions on the first and fourth quarter, the Scottish rampant lion appears on the second and a harp represents Ireland in the third.
Staff at Flying Colours have been making flags for the Royal Family since 2000 and have held the Royal Warrant since 2007.
When the most recent order from the Palace arrived, staff quietly suspected the reasons for it.
Mr Ormrod said: "We never know [the reasons] the Palace are ordering, because that is none of our business.
"On this one, when these four yard flags, which means 12 yards by 6 foot - a typical size for a coffin drape - [came in] obviously it's never going to be used for flag pole use.
"It then can sit proudly on top of Her Majesty's coffin. We're really proud of that."
The flag seen atop the coffin at St Giles' Cathedral took local seamstress, Anthea Corner-Walker, 50-60 hours to complete.
She said seeing the finished product during the proceedings made her feel proud to have been involved.
Flying Colours' Royal Warrant is set to expire in two years, but staff who undertake the painstakingly intricate process are hoping it will be renewed under His Majesty, King Charles III.
Mr Ormrod added: "We zigzag the stitching all the way around every single claw, every single detailed piece of fur, so it's an absolute dying art and I do hope we can continue."
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