A shop where rags and refuse are bought and sold. So called from the black doll suspended over it as a sign. Dolly shops are, in reality, no better than unlicensed pawnshops. A black doll used to be the sign hung out to denote the sale of silks and muslins which were fabricated by Indians.
Source: Dictionary of Phrase and Fable, E. Cobham Brewer, 1894