Babu Shiv Prasad Gupt and Bhagwan Das established the university in Varanasi, on 10 February 1921, during the non -cooperation movement of the freedom struggle. Originally named Kashi Vidyapith, the university was renamed Mahatma Gandhi Kashi Vidya pith in 1995. It was inaugurated by Mahatma Gandhi.

Inspired by Gandhi's call for self-reliance and swaraj (self-rule), the Kashi Vidyapith was the first modern university organised by Indians in British India. The university, along with contemporaries such as the Jamia Millia Islamia and the Gujarat Vidyapith, were outside the control and support of British authorities, supported and managed entirely by Indian nationalists and educationalists. Attracting young Indians from across the country, its faculty included prominent nationalists and scholars such as Acharya Narendra Dev, Jivatram Kripalani, Shriprakash and Sampurnanand. Gandhi and Indian nationalists encouraged Indians to boycott British-run institutions in favour of institutions managed entirely by Indians. Many prominent Indian industrialists and politicians provided financial and administrative support to the university.

Bhagwan Das was the first vice-chancellor. Others associated with the first board of management included Mahatma Gandhi, Lala Lajpat Rai, Jamuna Lal Bajaj, Jawahar Lal Nehru, Babu Shiv Prasad Gupta, Acharya Narendra Dev, Krishna Kant Malviya, and Purushottam Das Tandon. The founding ceremony of the Vidyapith reverberated with the recital of Vedic mantras as well as excerpts from the Quran in the presence of educationists, learned persons and nationalists such as Pandit Motilal Nehru, Maulana Mohammed Ali and Maulana Abul Kalam Azad. Bhagwan Das was the first vice-chancellor. Others associated with the first board of management included Mahatma Gandhi, Lala Lajpat Rai, Jamuna Lal Bajaj, Jawahar Lal Nehru, Babu Shiv Prasad Gupta, Acharya Narendra Dev, Krishna Kant Malviya, and Purushottam Das Tandon. The founding ceremony of the Vidyapith reverberated with the recital of Vedic mantras as well as excerpts from the Quran in the presence of educationists, learned persons and nationalists such as Pandit Motilal Nehru, Maulana Mohammed Ali and Maulana Abul Kalam Azad.

Established with the resolution to keep the institution away from government recognition and grants the Vidyapith was accorded the status of "Deemed University" by the UGC in 1963. This epoch-making event started a new chapter for the institution. Babu Sampurnanand was appointed as the chancellor and Acharya Birbal Singh as vice-chancellor. As the chief minister of Uttar Pradesh (U.P.), Pt.Kamlapati Tripathi initiated a state government resolution to make his alma mater a statutory university; this happened on 15 January 1974. At this point, Prof. Raghukul Tilak was the vice-chancellor and the Governor of U.P. became the chancellor in accordance with the U.P. University Act. At present, the M.G. Kashi Vidyapith is flourishing under the able leadership of Vice-Chancellor, Prof. Anand K. Tyagi.