Swayambhu is not only one of the most honorable Buddhist sites of the Kingdom but also the most sacred of the Kathmandu valley, as it symbolizes the creation of the valley itself.

As mentioned in the Savayambhupurana, the present day Kathmandy valley used to be a lake called Kalihrada. In Satyayuga Bipaswi Buddha sowed a lotus seed in the lake and after eighty thousand years the lotus bloomed. Self-Existent Lord, the Swayambhunath manifested himself in the form of Light (Jyotirupa) from this lotus.

In Treta Yuga, the Bodhisattva Manjusri came from China to pay the pilgrimage. He found the access to Swayambhu difficult due to monstrous aquatic animals in the lake. With his sword he cut the mountain surrounding the lake at a place called Kotbar (Chobar) and drained the water. The valley then became a place for human settlement, known as Manju Pattan. Latter the disciplines of Manjusri built the Manjusri Chaitya near the Swayambhu Mahachaitya to his memorial.

Later in Dwapar Yuga, the Bodhisatva Vajrasattva fearing that wicked men in the age of Kaliyuga would steal away the jewels of Swayambhu concealed him under a stone salb. Master Santikaracharya raised a chaitya over the hidden Swayambhu, which remained there until today.