Hsuan Tsang mentions a monastery at Sarnath called Mulagandha Kuti Vihara that marked the spot where the Buddha sat in meditation. During excavations by archaeologist in the 19th century an image was found that also had the name carved at its base. In the twentieth century when Anagarika Dharmapala founded the Mahabodhi Society he restored Sarnath.

In 1922 Dharmapala laid the foundation of a new temple that he named Mulagandha Kuti Vihara in memory of the ancient shrine. The temple is built in red sandstone and stands surrounded green lawns and the ruins of stupas. A spire rises above the rectangular prayer hall and it is decorated with carved bells, the Buddhist wheel and a small ornamental stupa. There are four smaller spires in the corners of the building.

Devotees enter a quiet space echoing to the soft chant of mantras and wafting incense smoke. At the altar are Buddhist relics found at Taxila, Nagarjunakonda and Mirpur Khas. The walls are covered in exquisite frescoes painted in the Ajanta style by the Japanese artist Kosetu Nosu and show episodes from the life of the Buddha. Devotees pray at the altar and then at the Bodhi tree that stands outside and was grown from a sapling brought from Anuradhapura in Sri Lanka. There is a deer park behind the temple where the deer still wander.