Jaisalmer was founded by the Bhatti Rajput chieftain Rawal Jaisal in 1156. According to the local legends, seeking a more secure capital, the usurper was advised by a saint to build a castle on the Trikuta hill. It was in fulfillment of Lord Krishna's prophecy that a distant scion of his Yadav clan would build a kingdom here. There was water on the hill, a miracle performed by Krishna to quench the thirst of Arjuna. The hilltop offered the safest fort location, dominating and surveying the desert for miles.

The Lunar clan of Bhattis is Krishna's descendant, valiant and most feared of the dessert marauders, perennially locked in territorial skirmishes with Jodhpur and Bikaner. One Bhatti scion-Gaj Singh had founded the city of Ghazni in Afghanistan but ultimately lost it to forces from Khorasan. One of his grandsons reclaimed Ghazni, embraced Islam, and came to be called Chagattas (Mughals). They later plundered the land of their ancestors between 1000 and 1025 A.D. Again, led by Babar they came to found the Mughal Empire in India.

Jaisalmer lay on the camel trade route between India and Central Asia, a caravanserai for traders and earned its share of profits without producing anything of its own. But the rise of the shipping trade and development of the Bombay port led to its decline in importance. Jaisalmer suffered a further fall in fortune when following the partition of the country; trade routes across the border were sealed. Jaisalmer stood high and dry. But the two wars with Pakistan revived its strategic importance once again. National Highways and a railways track, and now an airstrip have brought Jaisalmer within easy reach of the people.