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According to folklore, Bhopal is said to have been founded by the king Bhoja of the Paramara dynasty (AD 1000–1055), who ruled from his capital at Dhar. This theory states that Bhopal was originally known as Bhojpal after the king and the dam (“pal”) constructed by him. No available archaeological evidence, inscriptions or historical texts support the claim about an earlier settlement founded by Bhoja at the same place, although a temple complex constructed by him exists at Bhojpur, which is located 28 km from Bhopal. An alternative theory says that the name of the city was coined from the name of another king called Bhupala (or Bhupal).

In the early 18th century, Bhopal was a small village in the local Gond kingdom. The modern Bhopal city was established by Dost Mohammad Khan (1672–1728), an Afghan soldier in the Mughal army. After the death of the emperor Aurangzeb, Khan started providing mercenary services to several local chieftains in the politically unstable Malwa region. In 1709, he took on the lease of Berasia estate, and later annexed several territories in the region to establish the Bhopal State. Khan received the territory of Bhopal from the Gond queen Rani Kamlapati in lieu of payment for mercenary services, and usurped her kingdom after her death. In the 1720s, he built the Fatehgarh fort in the village, which developed into the city of Bhopal over the next few decades.

In 1818, Bhopal became a British princely state. Between 1819 and 1926, it was ruled by four women, Begums, – unique in the royalty of those days – under British suzerainty, Qudsia Begum was the first woman ruler, who was succeeded by her only daughter Sikandar Begum, who in turn was succeeded by her only daughter, Shahjehan Begum. Sultan Jahan Begum was the last woman ruler, who after 25 years of rule, abdicated in favour of her son, Hamidullah Khan. The rule of Begums gave the city its waterworks, railways, a postal system and a municipality constituted in 1907.

Bhopal State was the second-largest Muslim-ruled princely state, the first being Hyderabad. After the independence of India in 1947, the last Nawab expressed his wish to retain Bhopal as a separate unit. Agitations against the Nawab broke out in December 1948, leading to the arrest of prominent leaders including Shankar Dayal Sharma. Later, the political detainees were released, and the Nawab signed the agreement for Bhopal’s merger with the Union of India on 30 April 1949. The Bhopal state was taken over by the Union Government of India on 1 June 1949.