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The temple was created in the 5th century by Licchavi King Prachanda Dev after the previous building was consumed by termites. Over time, many more temples have been erected around this two-storied temple. These include the Vaishnava temple complex with a Rama temple from the 14th century and the Guhyeshwari Temple mentioned in an 11th-century manuscript.

There are several complex stories involving the origins of Pashupatinath. One story goes, in brief, that Shiva and Parvati came to the Kathmandu Valley and rested by the Bagmati while on a journey. Shiva was so impressed by its beauty and the surrounding forest that he and Parvati changed themselves into deer and walked into the forest. Many spots in the Kathmandu Valley have been identified as places where Shiva went during his time as a deer. After a while, the people and gods began to search for Shiva. Finally, after various complications, they found him in the forest, but he refused to leave. More complications ensued, but ultimately Lord Shiva announced that, since he had lived by the Bagmati river in a deer's form, he would now be known as Pashupatinath, Lord of all animals. It is said that whoever came here and beheld the lingam that appeared there would not be reborn as an animal.

This main temple is built in the Nepalese pagoda style of architecture. All the features of pagoda style are found here like cubic constructions, beautifully carved wooden rafters on which they rest (tundal). The two level roofs are of copper with gold covering. The temple resides on a square base platform with a height of 23m 7 cm from base to pinnacle. It has four main doors, all covered with silver sheets. This temple has a gold pinnacle (Gajur). Inside are two Garbhagrihas, outer and inner. The inner garbhagriha or sanctum sanctorum is where the idol is placed and outer sanctum is an open corridor-like space.