Middleton wore the transparent dress over black lingerie at a 2002 charity fashion show at the University of St. Andrews when the two students were just friends. The British tabloids widely reported that Prince William paid for a front-row seat at the show.
Their romance started shortly afterward, and some journalists maintain it was the eye-catching outfit that made the friendship sizzle.
The piece of royal history is expected to sell for more than 8,000 pounds ($12,800) at Kerry Taylor Auctions on March 17. It was designed by Charlotte Todd, who did not pursue a career in fashion and now works at an aquarium.
"If it is true that my design helped change the Prince's interest in Kate from platonic to romantic as has been reported, then I am pleased to have played a part - however minor," said Todd. "I never would have imagined as I sat knitting this piece that one day it would be so important."
The knitted lace dress was at first intended to be worn as a skirt, but Middleton wore it as a short dress instead. Todd initially said she would not sell the famous dress but later changed her mind.
The auction will also include two gowns worn by William's mother, the late Princess Diana.
Middleton and the prince are to be married April 29 in London's Westminster Abbey.