The community of Chogyam Trungpa originated in 1970 with his arrival in North America from Scotland. The first established center of his teachings was "Tail of the Tiger" in Barnet, Vermont (now Karmê Chöling). When Rinpoche began teaching at the University of Colorado in 1971, a second branch of the community began to form there. When Vajradhatu was incorporated in Colorado in 1973, it consolidated Tail of the Tiger, Rocky Mountain Dharma Center, a retreat facility in the Rocky Mountains in Colorado; and Karma Dzong, an urban meditation center in Boulder, Colorado. The organization grew to include the Gampo Abbey in Nova Scotia; and dozens of smaller meditation centers called "Dharmadhatus," in cities around the US, Canada and later in Europe.
In the early 1970s the community grew rapidly and attracted the involvement of such notables as Allen Ginsberg, Anne Waldman, and many others. As the decade wore on, the hippies and sixties counterculture members who comprised the large part of the membership were asked by Trungpa to experiment with more formal modes of behavior, attire, address, and societal expressions in general.
Vajradhatu hosted visits by the Sixteenth Karmapa (head of the Kagyu Lineage) in 1974, Khyentse Rinpoche (head of the Nyingma Lineage) in 1976, and the Fourteenth Dalai Lama (head of the Gelugpa Lineage) in 1981. In 1976 Trungpa Rinpoche began his cycle of Shambhala teachings and, with his students, manifesting forms of Shambhala society. In 1986 he moved the international headquarters of Vajradhatu to Halifax, Nova Scotia, where he died the following year. A large number of his disciples emigrated from the United States to Nova Scotia along with him.
In 1972 Trungpa identified Thomas F. Rich (an American with Buddhist name Ösel Tendzin) as his dharma heir, and in a formal ceremony on August 22, 1976, Trungpa appointed Rich as Dorje Gyaltsap, Vajra Regent, and Director of the First Class of Vajradhatu. As described in the 1977 article in "Garuda V", which also reproduces the proclamation (signed by Trungpa XI and Karmapa XVI), Trungpa empowered Thomas Rich "as his regent and as a holder of the Kagyu and Nyingma lineages". Trungpa further stated "There is the possibility that members of the sangha, Western people, can take over from the Tibetans".
Ösel Tendzin assumed leadership of the organization in the wake of Trungpa's death until his own death shortly thereafter, in 1990 of AIDS, amid controversy over admissions that he had unprotected sex with students while knowing he had AIDS. Ösel Tendzin infected at least one male student with HIV; the young man later died of AIDS .
In February 2000, restated articles of incorporation were signed, officially changing the name from Vajradhatu to Shambhala International. The change of name, which began informally with the Sakyong Mipham's assumption of leadership in 1990, reflected his approach of integrating the Shambhala teachings within Buddhism and making them the unifing principle of a Shambhala Buddhist sangha.