Among early Buddhists Pali was considered linguistically similar to, or even a direct continuation of, the Old Magadhi language. Many Theravada sources refer to the Pali language as "Magadhan" or the "language of Magadha". This identification first appears in the commentaries, and may have been an attempt by Buddhists to associate themselves more closely with the Mauryans. The Buddha taught in Magadha, but the four most important places in his life are all outside of it. It is likely that he taught in several closely related dialects of Middle Indo-Aryan, which had a very high degree of mutual intelligibility.
There is no attested dialect of Middle Indo-Aryan with all the features of Pali. Pali has some commonalities with both the Ashokan inscriptions at Girnar in the West of India, and at Hathigumpha in the East. Similarities to the Western inscription may be misleading, because the inscription suggests that the Ashokan scribe may not have translated the material he received from Magadha into the vernacular of the people there.
According to Norman, it is likely that the viharas in North India had separate collections of material, preserved in the local dialect. In the early period it is likely that no degree of translation was necessary in communicating this material to other areas. Around the time of Ashoka there had been more linguistic divergence, and an attempt was made to assemble all the material. It is possible that a language quite close to the Pali of the canon emerged as a result of this process as a compromise of the various dialects in which the earliest material had been preserved, and this language functioned as a lingua franca among Eastern Buddhists in India from then on. Following this period, the language underwent a small degree of Sanskritisation (i.e., MIA bamhana -> brahmana, tta -> tva in some cases).
T.W. Rhys Davids in his book Buddhist India, and Wilhelm Geiger in his book Pali Literature and Language, suggested that Pali may have originated as a form of lingua franca or common language of culture among people who used differing dialects in North India, used at the time of the Buddha and employed by him. Another scholar states that at that time it was "a refined and elegant vernacular of all Aryan-speaking people." Modern scholarship has not arrived at a consensus on the issue; there are a variety of conflicting theories with supporters and detractors. After the death of the Buddha, Pali may have evolved among Buddhists out of the language of the Buddha as a new artificial language. Bhikkhu Bodhi, summarizing the current state of scholarship, states that the language is "closely related to the language (or, more likely, the various regional dialects) that the Buddha himself spoke." He goes on to write:
Scholars regard this language as a hybrid showing features of several Prakrit dialects used around the third century BCE, subjected to a partial process of Sanskritization. While the language is not identical with any the Buddha himself would have spoken, it belongs to the same broad linguistic family as those he might have used and originates from the same conceptual matrix. This language thus reflects the thought-world that the Buddha inherited from the wider Indian culture into which he was born, so that its words capture the subtle nuances of that thought-world.
Whatever the relationship of the Buddha's speech to Pali, the Canon was eventually transcribed and preserved entirely in it, while the commentarial tradition that accompanied it (according to the information provided by Buddhaghosa) was translated into Sinhalese and preserved in local languages for several generations. R.C. Childers, who held to the theory that Pali was Old Magadhi, wrote: "Had Gautama never preached, it is unlikely that Magadhese would have been distinguished from the many other vernaculars of Hindustan, except perhaps by an inherent grace and strength which make it a sort of Tuscan among the Prakrits."
However Pali was ultimately supplanted in India by Sanskrit as a literary and religious language following the formulation of Classical Sanskrit by the scholar Pāṇini. In Sri Lanka, Pali is thought to have entered into a period of decline ending around the 4th or 5th century (as Sanskrit rose in prominence, and simultaneously, as Buddhism's adherents became a smaller portion of the subcontinent), but ultimately survived. The work of Buddhaghosa was largely responsible for its reemergence as an important scholarly language in Buddhist thought. The Visuddhimagga and the other commentaries that Buddhaghosa compiled codified and condensed the Sinhalese commentarial tradition that had been preserved and expanded in Sri Lanka since the 3rd century BCE.