Although archeological exploration of Bhutan has been limited, evidence of civilization in the region dates back to at least 2000 B.C. Aboriginal Bhutanese, known as Monpa, are believed to have migrated from Tibet. The traditional name of the country since the 17th century has been Drukyul, Land of the Drokpa (Dragon People), a reference to the dominant branch of Tibetan Buddhism that is still practiced in the Himalayan kingdom.

For centuries, Bhutan was made up of feuding regions until it was unified under King Ugyen Wangchuck in 1907. The British exerted some control over Bhutan's affairs, but never colonized it. Until the 1960s Bhutan was largely isolated from the rest of the world, and its people carried on a tranquil, traditional way of life, farming and trading, which had remained intact for centuries. After China invaded Tibet, however, Bhutan strengthened its ties and contact with India in an effort to avoid Tibet's fate. New roads and other connections to India began to end its isolation. In the 1960s Bhutan also undertook social modernization, abolishing slavery and the caste system, emancipating women, and enacting land reform. In 1985, Bhutan made its first diplomatic links with non-Asian countries.

A pro-democracy campaign emerged in 1991, which the government claimed was composed largely of Nepali immigrants. As a result, some 100,000 Nepali civil servants were either evicted or encouraged to emigrate. Most of them crossed the border back into Nepal, where they were housed in UN-administered refugee camps. They continue to languish there a decade later.

In 1998, King Jigme Singye Wangchuck, who is Bhutan's fourth hereditary ruler, voluntarily curtailed his absolute monarchy, and in March 2005 released a draft constitution (not yet put to a referendum) that outlined plans for the country to shift to a two-party democracy. In Dec. 2006, he abdicated in favor of his son, and Crown Prince Jigme Khesar Namgyal Wangchukin became king. Prime Minister Lyonpo Khandu Wangchuk resigned in July 2007 so he could join a political party in anticipation of the country's first elections, scheduled to be held in early 2008. Lyonpo Kinzang Dorji took over as the interim prime minister.

Parliamentary elections, Bhutan's first national election, were held in March 2008, with turnout at about 80%. The pro-monarchy Druk Phuensum Tshogpa, translated as the Bhutan Peace and Prosperity Party, won 44 out of 47 seats in Parliament, trouncing the People’s Democratic Party. The election marked Bhutan's transition from an absolute monarchy to a democracy. In April, Lyonpo Jigme Thinley, of the Peace and Prosperity Party, became prime minister.