Coin of the Kushan emperor Kanishka.

The rise of Mahayana Buddhism from the 1st century BCE was accompanied by complex political changes in northwestern India. The Indo-Greek kingdoms were gradually overwhelmed, and their culture assimilated by the Indo-Scythians, and then the Yuezhi, who founded the Kushan Empire from around 12 BCE.

The Kushans were supportive of Buddhism, and a fourth Buddhist council was convened by the Kushan emperor Kanishka, around 100 CE at Jalandhar or in Kashmir, and is usually associated with the formal rise of Mahayana Buddhism and its secession from Theravada Buddhism. Theravada Buddhism does not recognize the authenticity of this council, and it is sometimes called the "council of heretical monks".

The new form of Buddhism was characterized by an almost God-like treatment of the Buddha, by the idea that all beings have a Buddha-nature and should aspire to Buddhahood, and by a syncretism due to the various cultural influences within northwestern India and the Kushan Empire.

The Fourth Council is said to have been convened in the reign of the Kushan emperor Kanishka, around 100 CE at Jalandhar or in Kashmir. Theravada Buddhism had its own Fourth Council in Sri Lanka. Therefore there are two Fourth Councils: one in Sri Lanka (Theravada), and one in Kashmir (Sarvastivadin).

It is said that for the Fourth Council of Kashmir, Kanishka gathered 500 monks headed by Vasumitra, partly, it seems, to compile extensive commentaries on the Abhidharma, although it is possible that some editorial work was carried out upon the existing canon itself. Allegedly, during the council there were all together three hundred thousand verses and over nine million statements compiled, and it took twelve years to complete. This council did not rely on the original Pali canon (the Tipitaka). Instead, a set of new scriptures was approved, as well as fundamental principles of Mahayana doctrine. The new scriptures, usually in the Gandhari vernacular and the Kharosthi script, were rewritten in the classical language of Sanskrit, to many scholars a turning point in the propagation of Buddhist thought. The main fruit of this Council was the redaction of Agamas and compilation of the vast commentary known as the Maha-Vibhasha ("Great Exegesis"), an extensive compendium and reference work on a portion of the Sarvastivadin Abhidharma.

Scholars believe that it was also around this time that a significant change was made in the language of the Sarvastivadin canon, by converting an earlier Prakrit version into Sanskrit. Although this change was probably effected without significant loss of integrity to the canon, this event was of particular significance since Sanskrit was the official holy language of Brahmanism in India, and was also being used by other thinkers (regardless of their specific religious or philosophical allegiance), thus enabling a far wider audience to gain access to Buddhist ideas and practices. For this reason, all major (Mahayana) Buddhist scholars in India thereafter wrote their commentaries and treatises in Sanskrit. Therevada however never switched to Sanskrit, partly because Buddha explicitly forbade translation of his discourses into Sanskrit because it was an elitist religious language (like Latin was in Europe before). He wanted his monks to use a local language instead; a language which could be understood by all. Over time however, the language of the Theravadin scriptures (Pali) became a scholarly or elitist language as well.