Dharamshala stands on a spur of the Dhauladhar range amidst magnificient deodar and pine forests, tea gardens and beautiful hills.

Dharamsala's earliest history is obscured by time and the successive invasions that swept through all North India.

In 1849 the British posted a regiment in Dharamsala, but the place was not to remain a military cantonment for long. By 1855 it was a small but flourishing hill station and the administrative headquarters of Kangra District, which had been annexed by the British in 1848. The two main areas at the time were McLeod Gunj, named after Lieutenant-Governor of Punjab, David McLeod, and Forsyth Gunj, named after a divisional commissioner.

Dharamsala is divided into two very different parts. Kotwali Bazaar and areas further down the valley (at the average height of 1,250 metres) are called Lower Dharamsala, while McLeod Gunj (at the height of nearly 1,800 metres) and surrounding areas are known as Upper Dharamsala. McLeod Gunj is nine kilometers by bus route and five kilometres by taxi route up the hill from Kotwali Bazaar. While inhabitants of Lower Dharamsala are almost all Indians, McLeod Gunj is primarily a Tibetan area.