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The name Kandy is derived from the Sinhalese kaⁿda uḍa pas raṭa, literally "the five districts on the mountain". The Portuguese shortened this to "Candea", using the name for both the kingdom and its capital Senkadagalapura. In Sinhala, Kandy is called Maha Nuvara (pronounced [maha nuʋərə]), meaning "Great City" or "Capital", although this ismost often shortened to Nuvara.

Historical records suggest that Kandy was first established by the King Wickramabahu (1357-1374 CE) near the Watapuluwa area, north of the present city, and named Senkadagalapura at the time, although some scholars suggest the name Katubulu Nuwara may also have been used. The origin of the more popular name for the city, Senkadagala, could have been from a number of sources. These include naming after a brahmin named Senkanda who lived in a cave near the city, after a queen of King Wickramabahu named Senkanda or after a colored stone named Senkadagala.
In 1592 Kandy became the capital city of the last remaining independent kingdom in the island after the coastal regions had been conquered by the Portuguese. Several invasions by the Portuguese and the Dutch (16th, 17th and 18th century) and later by the British (most notably in 1803) were repelled. Portuguese invasions in the 16th century and 17th century were entirely unsuccessful.
The kingdom tolerated a Dutch presence on the coast until 1761, when King Kirti Sri attacked and overran most of the coast, leaving only the heavily fortified Negombo intact. When a Dutch retaliatory force returned to the island in 1763, Sri abandoned the coastline and withdrew into the interior. When the Dutch continued to the jungles the next year, they were constantly harassed by disease, heat, lack of provisions, and Kandyan sharpshooters, who hid in the jungle and inflicted heavy losses on the Dutch. The Dutch launched a better adapted force in January of 1765, replacing their troops' bayonets with machetes and using more practical uniforms and tactics suited to jungle warfare. Though initially successful in capturing the capital which was deserted, the Kandyans withdrew to the jungles once more, refusing to engage in open battle. The Dutch, worn down by constant attrition, came to terms in 1766.
The last ruling dynasty of Kandy were the Nayaks. Kandy stayed as a independent until March 2, 1815 when the treaty, the Kandyan Convention signed by the British and [[Radala] the (Kandyan aristocrats) which recognized the King of England as the its King and became a British protectorate following an invasion that met no resistance that reached the city on February 10, 1815. The last king of the kingdom Sri Vikrama Rajasinha was captured and taken as a royal prisoner by the British to Vellore Fort in southern India along with all claimants to the throne.
As the capital, Kandy had become home to the relic of the tooth of the Buddha which symbolizes a 4th-century tradition that used to be linked to the Sinhalese monarchy, since the protector of the relic was the ruler of the land. Thus, the Royal Palace and the Temple of the Tooth were where placed in close proximity to each other.
During world war 2 the South East Asia Command of the allies was moved to Kandy in 1944 where it remained till the end of the war.
Today Kandy remains a important religious center of the Sinhalese and a place of pilgrimage for Buddhists, namely those belonging to the Theravada school. It is the second largest city of in the island.

The monumental ensemble of Kandy is an example of construction that associates the Royal Palace and the
The Temple of the Tooth (Palace of the tooth relic) is the place that houses the Relic of the tooth of the Buddha. Originally part of the Royal Palace complex of the Kandyan Kingdom, it is one of the mos holiest places of worship and pilgrimage for Buddhist around the world. It was last of a series of temples built in the places where the relic, the actual palladium of the Sinhalese monarchy, was brought following the various relocations of the capital city.
The Palace of the Tooth relic, the palace complex and the holy city of Kandy are associated with the history of the dissemination of Buddhism. The temple is the product of the last peregrination of the relic of the tooth of Buddha and the testimony of a religion which continues to be practiced today.
The Royal Palace of Kandy is the last Royal Palace built in the island. Although only part of the original palace complex remain. The Temple of the Tooth was part of this comples, due to the ancient tradition that stated that the monarch is the protector of the relic though which the ruler of the land. It today houses the National Museum Kandy which holds an extensive collection of artifacts from both the Kandy Kingdom and the British colonial rule.
The Lankatilaka Temple is considered to be one of the best preserved examples of traditional Sinhalese temple architecture. Built on a rock, the temple is reached by a long series of rock cut steps. An arched passage of the image house leads through a Mandapa (hall) into the inner sanctum which is richly decorated with beautiful floral designs. The two side walls and the ceiling are decorated with paintings. In the inner sanctum is a colossal seated image of the Buddha.
The Gadaladeniya Temple's design is of South Indian origin with a Devale attached to it, similar in character to the Natha Devale and the Gedige of Adahana Maluwa. The main shrine room has a seated Buddha statue and the remains of some paintings of the Gampola period.

Kandy is very popular due to the annual pageant known as the Esala Perahera (ˈɶsələ ˌperəˌhɶrə) in which one of the inner caskets used for covering the tooth relic of Buddha is taken in a grand procession through the streets of the city. This casket is taken on a royal tusker. The procession includes traditional dancers and drummers, flag bearers of the provinces of the old Kandyan kingdom, the Nilames (lay custodians of temples ) wearing their traditional dresses, torch bearers and also the grandly attired elephant. This ceremony which is annually held in the months of July or August, attracts large crowds from all parts of the country and also many foreign tourists.