Dharamsala has been connected with Hinduism and Buddhism for a long time, with many monasteries having been established there in the past, built by Tibetan immigrants in the 8th century. When the Dalai Lama left Tibet, Indian Government offered to permit him and his followed to establish a government-in-exile in Dharamsala in 1960.

Dharamshala is divided into two regions, namely McLeod Gunj or upper Dharamsala and lower Dharamsala. The Upper Dharamsala or McLeod Gunj region mostly has establishment of monasteries, temples and schools. The town is sometimes known as "Little Lhasa", after the Tibetan capital city, and has become an important tourist destination with many hotels and restaurants, creating resurgence in tourism and commerce.

The lower Dharamsala or just Dharamsala is at an altitude of 1400 meter and the upper Dharamsala, more popularly known as McLeod Gunj is at 1750 meters making them considerably cooler than the plains below.