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Dharamshala has an average elevation of 1457 metres (4780 feet), covering an area of almost 8.51 kmĀ².

Dharamsala is located in the Kangra Valley, in the shadow of the Dhauladhar mountains.

The city is divided into two distinct sections. Kotwali Bazaar and the surrounding markets are referred to as "Lower Dharamshala" or just "Dharamshala." Further up the mountain is McLeodGanj separated in between by the village of Ganchen Kyishong, the home of the Tibetan government-in-exile. A steep, narrow road connects McLeodGanj from Dharamshala and is only accessible to taxis and small cars, while a longer road winds around the valley for use by buses and trucks. McLeodGanj is surrounded by pine, Himalayan oak, and rhododendron.

The main crops grown in the valleys below are rice, wheat and tea.