Bauddha, or the Bodhnath Stupa, is located in the town of Bauddha. It is larger than Swayambhu Mahacaitya and is generally entered from the north, rather than the east side. This stupa is said to house the relics of the ancient Buddha, Kasyapa.

Sacred history tells of a hard working, lower caste peasant woman who had three sons. She and her sons wanted to raise a stupa over Kasyapa Buddha's relics and asked the king for permission to engage in this undertaking. He granted permission, assuming that a poor peasant woman and her family could only afford a small, rather insignificant caitya. However, through Bya rDzima and her sons' deep devotion, the greatest stups in the world was created. Afterwards, each son made a vow. The first vowed that he would become a great king and would foster the conversion of a new land to Buddhism. The second son proclaimed that he would become a great teacher who would introduce Buddhism to a new community. The third son vowed to become a great teacher who would cause the teachings to work. The first son was reborn as Sontsen Gampo, the first Tibetan Dharma king whose reign marks the introduction of Buddhism into Tibet. The second son was reborn Santaraksita, a great teacher who came to Tibet from India in the 8th century. Santaraksita is considered the first great Buddhist missionary to Tibet. The third son was reborn as Padmasambhava, the most influential teacher and lineage deity of the rNying ma sect. Padmasambhava, like Santaraksita, was a missionary who came to Tibet from India. Popular legends hold that he was born in the country of Uddiyana from the bud of a large, multi-colored lotus that sprang up in the middle of a lake. Therefore, the stupa at Bauddha is said to be the stupa of Padamsambhava's mother -- really, his "grandmother" or his mother from a previous lifetime.