Based on the traditions of followers of the Bon Religion, Yumbu Lhakhang Palace was erected in the second century BC for the first Tibetan king, Nyatri Tsenpo, who was believed to have descended from heaven.

During the reign of the 28th King Lha Thothori Nyantsen in the fifth century, a golden Stupa, a jewel (and/or a form to the manufacture of dough-Stupas), and a Sutra, that no one could read, fell from the sky onto the roof of the Palace. A voice called from heaven said:"In next five generations, one who can understand its meaning will come."

Later, Yumbu Lhakhang Palace became the summer palace of the 33rd King Songtsaen Gampo and Princess Wencheng in the Tang Dynasty（618-907 AD）. After Songtsaen Gampo had passed his seat to Lhasa, Yumbu Lhakhang Palace became a chapel and under the reign of the 5th Dalai Lama, Ngawang Lobsang Gyatso, a monastery of the Yellow Sect of Tibetan Buddhism.