The laying of the foundation stone which marked the building of the mosque was performed by HRH Sultan Ismail Ibni Sultan Muhammad IV in the morning of 21 August 1922 (28 Zulhijjah 1340) to replace the old wooden mosque. The construction work of the new mosque was completed in 1925.

It was named Masjid Muhammadi, taken after the late Sultan Muhammad IV who fully dedicated his life to Kelantan.

The primary function of the mosque is to spread the knowledge of Islam. Several prominent religious scholars had carried out their teachings here, such as Tuan Tabal (1840-1891), Haji Wan Ali Kutan (1837-1912) and Tok Kenali (1868-1933). The system of teaching conducted here was similar to the one practise in Masjidil Haram in Mecca. Upon completion of their learning in the Muhammadi Mosque, students will pursue their education in Mecca.

The mosque became a well-known dissemination centre of Islam in this region and this has resulted in Kelantan earning the appellation "Serambi Mekah " which means the "Corridor of Mecca".