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Buddhism in Mongolia derives much of its recent characteristics from Tibetan Buddhism. Traditionally, the Mongols ethnic religions involved worship of Heaven (the "eternal blue sky") and ancestors and the ancient North Asian practices of Shamanism, in which human intermediaries went into trance and spoke to and for some of the numberless infinities of spirits responsible for human luck or misfortune.

Tibetan Buddhism is a ritualistic religion with a large number of deities. This inspired the creation of religious objects including images in painting and sculptures.

Although the emperors of the Yuan dynasty in the 14th and 15th century had already converted to Tibetan Buddhism, the Mongols returned to their old shamanist ways after the collapse of their empire. In 1578 Altan Khan, a Mongol military leader with ambitions to unite the Mongols and to emulate the career of Genghis Khan, invited the head of the rising Gelug lineage to a summit. They formed an alliance that gave Altan Khan legitimacy and religious sanction for his imperial pretensions and that provided the Buddhist school with protection and patronage. Altan Khan of Mongolia gave the Tibetan leader the title of Dalai Lama ("Ocean Lama"), which his successors still hold.

After the Stalinist purges in the 1930s, both Buddhism and Shamanism were virtually outlawed in the Mongolian People's Republic. In Inner Mongolia, traditional religion was heavily affected by the Cultural Revolution.

Robert Rupen reports that in the 1920s there were over 112,000 Mongolian Buddhist monks, representing more than 13% of Mongolia's overall population. By the 1940s, nearly every monk was either dead or had apostatized. This period has been illustrated in the Mongolian film "A Pearl in the Forest".

Since 1990, there has been a resurgence of Buddhist practice, though the former monastic tradition has not been restored.

According to the national census of 2010, 53% of the Mongolians identify themselves as Buddhists.

Many foreigners are surprised and often offended to find that swastika-type symbols are present in many places in Mongolia. This reversed swastika is a actually a traditional symbol known as the “has temdeg”, which predates the nazi symbol by many centuries. It represents four arms that revolve around the North star (altan hadaas or “Golden Nail”) like the four seasons.

This symbol is also present in the culture of Hopi and Anasazi Native Americans, as well as in Hindu and Buddhist cultures, and has a very ancient origin.