The city of Kathmandu is named after Kasthamandap temple, which stood in Durbar Square. In Sanskrit, Kāṣṭha (काष्ठ) means "wood" and Maṇḍap (/मण्डप) means "covered shelter". This temple, also known as Maru Satta: in the Newar language, was built in 1596 by Biseth in the period of King Laxmi Narsingh Malla. The two-story structure was made entirely of wood and used no iron nails nor supports. According to legend, all the timber used to build the pagoda was obtained from a single tree.[4] The structure collapsed during a major earthquake on 25 April 2015.

The colophons of ancient manuscripts, dated as late as the 20th century, refer to Kathmandu as Kāṣṭhamaṇḍap Mahānagar in Nepal Mandala. Mahānagar means "great city". The city is called "Kāṣṭhamaṇḍap" in a vow that Buddhist priests still recite to this day. Thus, Kathmandu is also known as Kāṣṭhamaṇḍap. During medieval times, the city was sometimes called Kāntipur (कान्तिपुर). This name is derived from two Sanskrit words – Kānti and pur. "Kānti" is a word that stands for "beauty" and is mostly associated with light and "pur" means place. Thus, giving it a meaning as "City of light".

Archaeological excavations in parts of Kathmandu have found evidence of ancient civilizations. The oldest of these findings is a statue, found in Maligaon, that was dated at 185 AD.[7] The excavation of Dhando Chaitya uncovered a brick with an inscription in Brahmi script. Archaeologists believe it is two thousand years old.[7] Stone inscriptions are a ubiquitous element at heritage sites and are key sources for the history of Nepal.

The earliest Western reference to Kathmandu appears in an account of Jesuit Fathers Johann Grueber and Albert d'Orville. In 1661, they passed through Nepal on their way from Tibet to India, and reported that they reached "Cadmendu", the capital of Nepal kingdom.

Ancient history
The ancient history of Kathmandu is described in its traditional myths and legends. According to Swayambhu Purana, present-day Kathmandu was once a huge and deep lake named "Nagdaha", as it was full of snakes. The lake was cut drained by Bodhisatwa Manjusri with his sword, and the water was evacuated out from there. He then established a city called Manjupattan, and made Dharmakar the ruler of the valley land. After some time, a demon named Banasur closed the outlet, and the valley was again a lake. Then lord Krishna came to Nepal, killed Banasur, and again drained out the water. He brought some Gopals along with him and made Bhuktaman the king of Nepal.

Kotirudra Samhita of Shiva Purana, Chapter 11, shloka 18 refers to the place as Nayapala city, which was famous for its Pashupati Shivalinga. The name Nepal probably originates from this city Nayapala.

Very few historical records exist of the period before the medieval Licchavis rulers. According to Gopalraj Vansawali, a genealogy of Nepali monarchy, the rulers of Kathmandu Valley before the Licchavis were Gopalas, Mahispalas, Aabhirs, Kirants, and Somavanshi. The Kirata dynasty was established by Yalamber. During the Kirata era, a settlement called Yambu existed in the northern half of old Kathmandu. In some of the Sino-Tibetan languages, Kathmandu is still called Yambu. Another smaller settlement called Yengal was present in the southern half of old Kathmandu, near Manjupattan. During the reign of the seventh Kirata ruler, Jitedasti, Buddhist monks entered Kathmandu valley and established a forest monastery at Sankhu.