The takiyya was founded in Bab al-Sheikh area, adjacent to al-Ghazali Cemetery and close to the Mausoleum of Abd al-Qadir al-Gilani, around 1743 by Sayyid Ali bin Ibrahim al-Qadiri al-Bandaniji during the Ottoman era. He was born in the town of Mandali in 1711, which at the time used to be called "Bandanij", hence Ali's name. He later traveled to Baghdad, where he founded a Qadiri takiyya that was named after him. Al-Bandaniji would gather a lot of students, do charity work, and recite dhikr and works of Imam Muhammad al-Bukhari. Al-Bandaniji also left many works of poetry and scholarship, which he worked on in the takiyya. According to Iraqi scholar Mahmud Shukri al-Alusi, the takiyya had 10,000 followers. He passed away after being infected with a plague that hit Baghdad in 1772 and was buried in the takiyya where his tomb is still accessible in the present.
The custodianship of the takiyya was taken over by his successor, Sheikh Safa' al-Din Isa bin al-Bandaniji al-Qadir al-Hasan, in 1788. His father, Sheikh Musa Jalal al-Din, was a Qadiri-Naqshabandi Sufi who was killed in 1822 after the Qajar invasion of Mandali. Due to his background, Isa focused on scholarly and work teachings of the Qadiri-Naqshabandi Orders in both the takiyya in the evening and the Dawudiyya Madrasa of the Haydar-Khana Mosque in the morning. Notably, Isa also built a small mosque in the takiyya and established a majlis attended by scholars, notables, and dignitaries of Baghdad. Which raised the importance of the takiyya at the time. Many of the religious scholars and sheikhs at the time in Iraq were from the families of al-Alusi, al-Rawi, al-Kurdi, and al-Na'ib.
Isa, who succeeded the custodianship of al-Bandaniji, would marry his daughter Saliha and had five children named Abdullah, Abd al-Rahman, Abd al-Rahim Diya' al-Din, Ahmad, and Hussein. He passed away on 25 November 1866 and was buried in a small chamber adjacent to the tomb of Ali al-Bandaniji. Currently, its entrance overlooks the takiyya's iwan. Afterwards, the custodianship was passed to his son, Sheikh Abd al-Rahman. The noble al-Bandaniji family remains the main custodians of the takiyya as of the 2010s.