The beginnings of the temple can be dated back to the earliest times of Buddhism in Sri Lanka. The cave dwellings on the rocky hillside had been prepared & donated to meditating monks by nobles in the area. These donations are recorded as Brahmi Inscriptions in the cave walls itself. These Brahmi Inscriptions dates back to around 200BC.
The story behind the name of the temple 'Ridi Viharaya' or 'Silver Temple' originated during the reign of King Dutu Gemunu(161BC- 137BC). The last of his great projects was the construction of 'Ruvanmeliseya' or Great Sthupa. The great king was wondering how to do the construction without burdening the people with taxes.
During this time, a merchant was traveling from Anuradhapura to Malaya (hill country) in a convoy of wagons. He stopped on the way to find some wood & went up the mountain. Then he found a large single ripe jack fruit hanging from a branch.
He cut it from the stalk & thought of giving first part as alms to monks, and four arhants appeared before him. He offered the fruit as alms & after they accepted, they went away. Again four more arhants appeared & he offered alms to them too. Then three of them went away, but one stayed back. When the merchant had eaten, he went along the the path where the arhant went & found him seated near a cave. Then the arhant asked him to go along a path. As he did so, he found a cave with silver in it. He broke a piece of silver with his axe & took it to King Dutu Gemunu, whereupon the great king had the treasure brought to him.
The cave was called Ambatthakola-cave . The king ordered a temple to be built where the cave was and sent chief artisan Vishwakarma Prathiraja with 300 stone masons and 700 other artisans. King Dutu Gemunu himself attended the dedication ceremony. He also endowed vast amounts of land to the temple for it's sustenance.
Thereafter through the ages it went into decay & decline.
Ridi Viharaya's great revival occurs in the Kandyan period during the reign of the King Keerthi Sri Rajasingha (1747-1782). This revival was brought about by Venerable Thibbotuwawe Sri Siddhartha Buddharakkitha thero. He was a pupil of scholar monk Venerable Velivita Sri Saranankara Thero. Venerable Thibbotuwawe Sri Siddhartha Buddharakkitha thero became the first high priest in Ridi Viharaya as well as of the Malwatta Chapter, one of the two great Buddhist monasteries of the new Siyam Nikaya.
The restoration of Ridi Viharaya was entrusted to Venerable Thibbotuwawe Sri Siddhartha Buddharakkitha thero by King Keerthi Sri Rajasingha. Many craftsmen, painters and others were assigned to the restoration of the temple. The re-dedication ceremony was held in 1757 participated by King Keerthi Sri Rajasingha.