It is said to have been built by Gim Daeseong and originally called Seokbulsa (석불사, Stone Buddha Temple). Construction began in 742 when Gim Daeseong resigned his position in the king's court or in 751, the 10th year of the reign of King Gyeongdeok of Silla. This time period was the cultural peak of Unified Silla. The grotto was completed by the Silla court in 774, shortly after Gim's death. An old legend stated that Gim was reincarnated for his filial acts in his previous life. The legend relates that the Bulguksa Temple was dedicated to Gim’s parents in his present life while the Seokguram Grotto was dedicated to Gim's parents from a previous life.
It is now one of the best known cultural destinations in South Korea. A viewing of the sunrise over the sea, which is visible from near the seated Buddha's perch, is especially popular.