Dharamshala stands on a spur of the Dhauladhar range amidst magnificient deodar and pine forests, tea gardens and beautiful hills. It is also known as 'The Lhasa in India'. The revered Dalai Lama has set up his home in this beautiful range.

Dharamsala practically divided into two parts viz. Upper Dharamsala and Lower Dharamsala. Lower part is a busy commercial centre while Upper part, with the suburbs of Mcleodganj and Forsytheganj still retains the British flavour and colonial lifestyle.

Dharamsala came into existence in 1849, it was selected as a site to accommodate a native regiment that was being raised in the town. Dharamsala originally formed a subsidiary cantonment for the troops stationed at Kangra Valley was fully occupied by its garrison and there was insufficient space for the civil station , a search for an alternate location was made. The ideal location for the cantonment was found at the slopes of the Dhauladhar, upon which stood an old Hindu sanctuary or 'Dharamsala' the name adopted for the town.

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, however, these monasteries are believed to have declined, with traditional Hindu building styles experiencing a revival. The local Gaddi people are now almost all Hindu, and for the most part worship many gods and goddesses, principally Durga and Shiva.

In 1848, the area was annexed by the British, and a year later, a military garrison was established in the town. Dharamsala eventually became the administrative capital of Kangra District in 1852. It became a popular hill station for the British working in or near Delhi, offering a cool respite during the hot summer months.

However, the town was virtually destroyed in a massive earthquake in 1905, which killed an estimated 20,000 people. Not only the town was devastated, but the nearby town Kangra was also ruined. After this, the British moved their summer headquarters to Shimla (also written Simla) which, though not far away, is off the main fault line and, therefore, less likely to experience a serious earthquake. Dharamsala still experiences frequent minor earthquakes.

When the Dalai Lama left Tibet, Indian Prime Minister Jawaharlal Nehru offered to permit him and his followers to establish a "government-in-exile" in Dharamsala in 1960. Since then, many Tibetan exiles have settled in the town, numbering several thousand. Most of these exiles live in Upper Dharamsala, or McLeod Ganj, where they established 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 a resurgence in tourism and commerce.

Since 2002, Dharamsala has hosted a Miss Tibet beauty contest. there. The winter capital Dharamsala has its secretariat at Sidhbari and the government would run for 6 months from there.