The major turning point occurred in the 17th century under the extraordinary leadership of the Shabdrung Ngawang Namgyal. Born in Tibet in 1594, he hailed from the princely family of Gya, which was then head of the Drukpa Kagyupa order. He was recognized as the reincarnation of the great Drukpa scholar Pema Karpo (1527-1592) - himself the incarnation of Tsangpa Gyare Yeshe Dorje (1161-1211), the founder of the Drukpa Kagyupa branch - and was groomed as a potential successor to the Drukpa throne. In 1606 he succeeded his late grandfather as the 18th prince-abbot of the Drukpas. However, he became embroiled in a dispute over his status as Pema Karpo's reincarnation, most notably with the powerful provincial ruler, the Tsang Desi. Under considerable danger at Ralung and having received an invitation from the Obtsho Lama of Gasa in northwestern Bhutan, in 1616, at the age of twenty-three, he left with his entourage carrying important relics of the Drukpa school.

Upon arrival the controlling Drukpa families of the west, who revered him as the true Drukpa hierarch, welcomed the future Shabdrung. Thus began the long and complex process of western and subsequently national unification. He united the Drukpa families under his authority, traveled extensively in western Bhutan, and through his ongoing exploits propagated increasing prestige and political influence. The principal threats to his increasing authority came externally from Tibet, initially from the Tsang Desi and later from the controlling Gelugpa School, and internally from a coalition of the other religious schools in the region called the "five groups of lamas". The first half of the century was a period of political consolidation as allies were courted and enemies repelled. Tibetan invasions were resisted shortly after his arrival, and again in 1634 and 1639 supported by the five groups of lamas. Two further Tibetan offensives were overcome in 1644 and 1648/9. By the time of his death in 1651 the Shabdrung, an honorific title meaning "at whose feet one submits", had unified western Bhutan, vanquished competing religious schools and fought off five Tibetan invasions.

In 1651 the Shabdrung entered strict seclusion in the Punakha Dzong, never to reappear. His death remained concealed for another fifty years, thereby aiding in the further consolidation of his legacy. By 1656 central and eastern Bhutan had been brought under Drukpa political rule, thus concluding the process of internal integration and heralding the birth of the nation. The Shabdrung left a major legacy to Drukyul, the land that bears the name of his religious school. Aside from being the dominant force behind unification, he was to pass on another fundamental bequest: a legal, political, administrative and physical infrastructure. One of his notable achievements was the creation of a formal code of laws for the country, called the Katrim. The Katrim defined the spiritual, economic and judicial relationships between state and society. In return for the teachings, initiations and rituals performed by the monastic community for the benefit of individual, society and nation, subjects were responsible for material and financial support, which took the form of various taxes. Written along Buddhist lines, the code further regulated all aspects of social life, from the nature of crime and punishment, to the behavior of monks and officials and the use of tobacco.

Prior to entering retreat, the Shabdrung sought to establish a strong government to administer after his death. The Shabdrung (and his subsequent incarnations) was recognized as the head of a theocratic Drukpa Kagyupa state. Under him was founded a dual system of government, known as chosi, where the monk body and associated religious matters were controlled by a chief abbot, the Je Khenpo, and political affairs were directed by a temporal head, the desi. The country was divided into three regions, each under the authority of a governor or ponlop. Other important posts were the chief of the dzong (dzongpon) and the elders (gups), who looked after several villages and mediated between state and society. Dzongs, monastic fortresses, formed the physical core for political, religious, administrative and legal systems. During his life the Shabdrung built a dzong in each valley in western Bhutan, thereby cementing his authority over the land, a process that was continued into the central and eastern regions. These dzongs, which were the seat for both religious and administrative power, are unique to Bhutan, and remain perhaps the most overt and enduring symbols of the Drukpa theocracy and the Shabdrung himself.