The dzong was built in 1629 by the first Zhabdrung Rinpoche (Ngawang Namgyal; 1594-1651) after a series of unlikely events brought him to the "southern valleys," i.e., Bhutan, far from his home in Ralung, well to the north on the Tibetan plateau. When he was just twelve years old, he was recognized as the reincarnation of the Pema Karpo (1527-92), the former head of the Drukpa lineage. This occasion brought him great authority, as he was called upon to head the Drukpas at Ralung as the 18th prince-abbot. However, a powerful faction lead by the Tsang Desi of Tsang province supported a rival candidate. This uneasy state of affairs persisted for nearly a decade until the Zhabdrung turned nineteen, when the ruling Tsang Desi died and was succeeded by his son. Zhabdrung attempted to make peace by asking the new Tsang Desi to rule definitively on who was the true reincarnation of Pema Karpo, but the Tsang Desi refused to answer.
Matters soon came to a head when a minor clash between the Zhabdrung's men and various lamas affiliated with the Tsang Desi resulted in several deaths. Enraged by this turn of events, the Tsang Desi demanded that Zhabdrung make compensation by handing over the Ranjung Karsapani, a sacred "self-created" (swayambhu) image of Avalokiteshvara found in the remains of Pema Karpo's spinal column following his cremation. The Zhabdrung refused this outright, as turning over the relic was tantamount to admitting he was not Pema Karpo's rightful successor. This forced the Tsang Desi's hand, who had no choice now but to arrest the Zhabdrung and forcibly reclaim the relic.
According to legend, various prophecies warned the Zhabdrung of the imminent arrival of the Tseng Desi's soldiers. One prophecy included a dream of a black raven flying southward, which he understood to be a manifestation of Yeshe Gonpo (a protective deity) warning him to flee to the southern valleys for refuge. Taking heed, Zhabdrung headed south and arrived in western Bhutan, gaining allies among local magnates who were themselves members of the Drukpa lineage. He unified the heads of various key families under his authority, particularly those from Thimphu, Punakha, Wangdi Phodrange, and Paro. Thus, the nucleus of the modern state of Bhutan came into being with Zhabdrung at its helm.
As the Zhabdrung was ultimately a religious leader, any institutions he founded in his new homeland tended toward a monastic character. Simultaneously, the realm was a land at war, not just with the Tsang Desi and his allies, but also with "internal" factions from central and eastern Bhutan who were opposed to the Zhabdrung's rule. Accordingly, the Zhabdrung established the dzong to help solidify his authority. Likely influenced by fortified towers in his native Tibet, dzongs were an innovative approach to combining monastic, administrative, and military command all under one roof, providing a fortified bastion to ensure the survival of his nascent state. The first such dzong, the Simtokha, was established at the south end of the Thimphu valley overlooking the crucial traffic flowing between that region and Punakha to the east (where the Zhabdrung would later build Punakha Dzong, the second such fortress-monastery to be established in Bhutan).
In 1629, nearly thirteen years after fleeing Tibet, the forces of the Zhabdrung came under attack at Simtokha by a coalition of five opposing schools of Buddhism, the so-called "five groups of lamas", who were united in their desire to see Drukpa authority curtailed. Their first attack failed, and for nearly five years there was an uneasy interlude while the coalition bided its time. Sensing that a new opportunity had come, the coalition invited the Tsang Desi to invade on their behalf. The Tibetan armies penetrated deeply into western Bhutan and met the Zhabdrung's forces at Simtokha dzong, but were repelled after a pitched battle that resulted in significant damage. Still, the damage to the dzong could be easily repaired, while the prestige of the Zhabdrung was greatly enhanced, aiding his forthcoming unification of the remainder of Bhutan.