I understand that Papermaking is going to happen at some point, but I want to put some input into
how it happens.
Papyrus is NOT paper. Papyrus is flat and you can write on it, but it isn't actually paper any more than vellum is. Paper comes from Ancient China, and is made from fiber and cloth (woo, hemp!). Papyrus was just too hard to come by to create a relevant industry, as it only grows in very particular wet tropical areas, and unless Dwarves have discovered Cave Papyrus, that exact same problem is going to happen in Dwarf Fortress. That said, this is Dwarf Fortress and I've got nothing against materials like papyrus, parchment or vellum existing alongside paper, but I don't want to see papyrus replace real, historical, better, cheaper, easier paper.
Also, let us not forget the many interesting uses for paper. Paper Crafts for your craft workshop. Paper money could be printed (which would be hilariously worthless due to intrinsic value). Decorative paintings that you could make with dye and place like statues. And if you're a fan of the Mythbusters, you've probably heard of the most ingenious use for paper ever:
Paper Armor
Yes. Not only did it exist, it was apparently very effective, on par with steel lamellar armor of the same period. If you have time to find and watch the episode, there's a lot of interesting info about why paper armor works, but if you don't have time, it mainly amounts to the fact that Chinese
hemp paper was not like modern wood pulp paper, it was a very stiff cloth, and it was folded several times to create a blocky cushion against both sharp and blunt attacks. If you're familiar with the principle behind composite armors, the thinness of paper acts like many many layers of composite material and diffuses the impact.
Anyways, if you can make Armor out of paper, it stands to reason that you could also make shields out of paper. You could probably also make paper clothing, I think I've heard of this but I can't find a good source, and it would probably be better to just make clothes out of the clothe and fibers to begin with, unless you can add some sort of value to paper.