The preference for the construction of royal palaces at this site dates back to as early as the Licchavi period in the third century. Even though the present palaces and temples have undergone repeated and extensive renovations and nothing physical remains from that period, names like Gunapo and Gupo, which are the names referred to the palaces in the square in early scriptures, imply that the palaces were built by Gunakamadev, a king ruling late in the tenth century. When Kathmandu City became independent under the rule of King Ratna Malla (1484-1520) the palaces in the square became the royal palaces for its Malla kings. When Prithvi Narayan Shah invaded the Kathmandu Valley in 1769, he also favored the Kathmandu Durbar Square for his palace. Other subsequent Shah kings continued to rule from the square until 1896 when they moved to the Narayan Hiti Palace. However, the square is still the center of important royal events like the coronation of King Birendra Bir Bikram Shah in 1975 and King Gyanendra Bir Bikram Shah in 2001.

Though there are not any written archives stating the history of the Kathmandu Durbar Square, the construction of the palace in the square is credited to Sankharadev (1069-1083). As the first king of the independent Kathmandu City, Ratna Malla is said to have built a Taleju temple at the Northern side of the palace in 1501. For this to be true then the temple would have had to have been built in the vihara style as part of the palace premise surrounding the Mul Chok courtyard for no evidence of a separate structure that would match this temple can be found within the square.