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Literacy was possible without paper, but mass literacy probably not. By replacing wood planks, clay tablets, reeds, parchment, and vellum with a mass-produced writing surface, paper opened up immense possibilities in the expression of ideas and human intellectual and scientific progress.
Crude paper is first mentioned around 300 BC in Chinese texts, but was refined and made really useful by Tsai Lun, working around 105 BC. By 200 AD it had replaced virtually all other writing material in China, and was also being used for personal hygiene, calling cards, home decoration (wallpaper and hangings), paper money, and clothing. The art of papermaking reached Korea and Japan by the early 600s AD, and Samarkand and Baghdad in the Moslem World by 794 AD. It was not until around 1320 AD that papermaking reached Europe. Within a few years of its first production at Mainz, Germany, paper mills were operating in Cologne, Nuremberg, Ratisbon, and Augsburg. Paper quickly replaced vellum and parchment as the material of choice for copyists and scribes. It also made possible large scale printing, and it is no coincidence that the site of the first European paper mill, Mainz, was also the home of Johannes Gutenberg.