Carnwennan first appears in the Welsh prose tale Culhwch and Olwen, composed in the 11th or early 12th century and preserved in the White Book of Rhydderch and the Red Book of Hergest, two of the most important manuscripts of medieval Welsh literature. The tale is a wild comic adventure in which Culhwch, a prince cursed by his stepmother to marry only the daughter of the giant Ysbaddaden Bencawr, comes to Arthur's court at Celliwig in Cornwall to ask for help. Arthur greets him with extravagant generosity, promising him anything in the world as far as the wind dries, the rain wets, the sun rises, the sea stretches, and the earth extends. Then comes the crucial word eithyr, "but," and Arthur lists the things he will not part with: his ship Prydwen, his mantle, his sword Caledfwlch, his spear Rhongomyniad, his shield Wynebgwrthucher, his knife Carnwennan, and his wife Gwenhwyfar. The list is a catalogue of Arthur's identity, and the dagger stands at the heart of it, the hidden blade that a warlord would no more give away than his wife or his sword. The name itself is Welsh, compounded of carn, meaning hilt or handle, and gwennan, a diminutive form of gwyn meaning white, fair, or blessed. The most common translation is "Little White Hilt," suggesting a handle of pale bone, ivory, or antler, though some scholars prefer "Blessed Hilt," emphasising the sacred rather than the chromatic. In either reading, the name focuses on the hilt rather than the blade, and in early Celtic weapon symbolism the hilt was the spiritual anchor of the weapon, the point of contact between the hand of the king and the power of the blade.

The Welsh Triads, the collections of Welsh lore arranged in groups of three that were compiled and transmitted from the early medieval period onward, elevate Carnwennan from a personal possession to a sacred gift. In the triad of the Twenty-Four Knights of Arthur's Court, the text records that Arthur triumphed over every nation in the world through the sacred weapons that God had given him: Rhongomiant his spear, Caledfwlch his sword, and Carnwennan his dagger. This is a Christian framing of what were probably older pagan weapons, the arms of a Celtic warlord rebaptised as gifts from the Christian God. The triad makes clear that Arthur's victories were not won by his own strength alone but by divine favour expressed through his arms, and Carnwennan shares in that sanctity even though the Welsh texts never attribute any overt supernatural power to it. Unlike Caledfwlch, which shines with its own light, or Rhongomyniad, which is thirsty for slaughter, Carnwennan is simply a knife, sharp and fit for close work.

The most dramatic use of Carnwennan occurs near the end of Culhwch and Olwen, when Arthur and his war-band have hunted the monstrous boar Twrch Trwyth across Britain and Ireland and have gathered most of the marvels that Ysbaddaden demanded. Arthur asks whether any wonder remains unobtained, and one of his men answers: the blood of the witch Orddu, the daughter of the witch Orwen, of Pennant Gofid, on the confines of Hell. Orddu means "Very Black" and Orwen means "Very White," and the mother-daughter pair represent a matrilineal tradition of witchcraft that stretches back through generations. Pennant Gofid means "Valley of Grief," and the "confines of Hell" is a translation of Uffern, the Welsh word for the Otherworld, the ancient British realm of the dead and the spirits that lies beneath the surface of the everyday world.

Arthur sets out for the North and comes to the witch's cave, and there the tale takes one of its most brutal turns. Gwyn ap Nudd, the god of the Otherworld and ruler of its spirits, and Gwythyr ap Greidawl, his rival, advise Arthur to send servants into the cave rather than enter himself. First Arthur sends Hygwydd and his brother Cacamwri, and the witch seizes Hygwydd by the hair, throws him to the floor, and beats both brothers out with kicks and cuffs. Then Arthur sends Hiramreu and Hireidil, and their fate is worse: not one of the four can move from the spot until they are all hoisted onto Llamrei, Arthur's gigantic mare. Arthur is wroth at seeing his servants almost slain, and he seeks to enter the cave himself, but Gwyn and Gwythyr say it is not fitting for a king to be seen wrestling with a hag. At last Arthur can bear it no longer. He rushes to the door of the cave, and at the door he strikes at the witch with Carnwennan his dagger, and clove her in twain, so that she fell in two parts. Kaw of North Britain takes the blood of the witch and keeps it, and the tale moves on to the next marvel as if the murder of a woman in her own home were nothing more than another item on a list.

The episode is one of the darkest in Arthurian literature, and it reveals a side of Arthur that the later romances would smooth away. This is not the courtly king of Camelot, the patron of the Round Table and the defender of chivalry. This is a warlord who hunts witches for their blood, who sends servants to do his dirty work and then kills the witch himself when they fail, who uses a hidden dagger rather than his royal sword because a dagger is the weapon of assassination, not of honourable combat. The choice of Carnwennan is significant: Arthur does not draw Caledfwlch, the sword of kingship, to fight a woman in a cave. He draws the hidden blade, the knife that disappears in the hand, the little white hilt that strikes from shadow.

Carnwennan has no place in the later French and English Arthurian romances. Geoffrey of Monmouth, writing his Historia Regum Britanniae around 1136, mentions Arthur's sword Caliburn and his spear Ron but never names the dagger. The Vulgate Cycle, the great prose romance of the 13th century, gives Arthur Excalibur and its scabbard, the Round Table, and a host of named knights, but no dagger. Thomas Malory, in his Le Morte d'Arthur of 1485, does record that Arthur carries a dagger and uses it to kill a giant on the island of Mont St Michel, but the weapon is never named. The Welsh dagger, named with pride in the oldest texts, was swallowed by the romance tradition that preferred magical swords and holy grails to a plain knife with a white hilt.

Yet Carnwennan has survived in the margins of the tradition and in modern retelling. Later folklore and some modern fantasy adaptations have attributed to it the power to shroud its bearer in shadow or even render them invisible, a development that fits the weapon's character as the blade of concealment. Where Excalibur shines like thirty torches, Carnwennan disappears. Where Excalibur is drawn in open battle before armies, Carnwennan is slipped from a sheath in the dark. The two blades represent a dual kingship: one of open rule and visible power, the other of hidden strength and secret authority. In this reading, Carnwennan is not the lesser weapon but the necessary complement, the blade that does the work that swords cannot do.