Bhutan. A small kingdom in the eastern Himalayas, situated between China and India, with its capital at Thimphu. The majority of the inhabitants are of Tibetan origin and are staunch Buddhists although some Nepalese Hindus have settled in the south in the past century. Buddhism in Bhutan is closely linked to Tibet and the main schools present belong to the Nyingma and Kagyü lineages. The early history of the country is veiled in legends but Buddhism was introduced there in the course of the 7th century ce. The state of Bhutan was founded in the 17th century by Ngawang Namgyel, a Tibetan monk, who established it along theocratic lines, similar to the system operated in pre-modern Tibet. Each ruler or ‘Dharma-rāja’ was believed to be a reincarnation of his predecessor until the beginning of the 20th century when no reincarnation could be found, thus bringing that system of government to an end. Due to British influence during the colonial period that emerged as a result of a treaty ratified between Bhutan and the East India Company, Britain took responsibility for Bhutan's external affairs although it never became a colony. This role was taken over by India in 1949, following independence. Since access to the country is strictly controlled to preserve its unique natural and cultural heritage, Bhutan has remained largely untouched by the less desirable aspects of modern development seen in neighbouring countries.

A Dictionary of Buddhism, Oxford University Press, 2003, 2004 (which is available in electronic version from answer.com)