The Muslim, Turkic Kara-Khanid Khanate is not to be confused with the Sinitic, Khitan Kara-Khitan Khanate.
The former was established by Turkic Qarluk-Uygur princes who converted to Islam and held Turkestan in the 11th century. Prior to the Qarluk-Uygurs' migration to Turkestan, the great Uygur Khanate of Mongolia, with its Manichaean state religion, its capital in Karabalgasun in northern central Mongolia and its vibrant Sogdian-Chinese hybrid high culture, was destroyed by Khakas, or Kyrgyz nomads from the Baikal region.
A branch of the Uygurs migrated to oasis settlements of Tarim Basin and Gansu, such as Gaochang (Khoja) and Hami (Kumul) and set up a confederation of decentralized Buddhist states called Kara-Khoja. Others, occupying western Tarim Basin, Ferghana Valley, Jugarian and parts of Kazakhstan bordering the Muslim, Turco-Tajik Khwarazm Sultanate, built a federation with Muslim institutions called Kara-Khanlik, whose princely dynasties are called Kara-Khanids by historians.
Influential Kara-Khanid rulers include Mahmoud Tamgach of Kashgar. After the defeat of the Khitan dynasty by the Jin Dynasty (1115-1234) in Northern China, the great Khitan mandarin Yelu Dashi escaped from China with a small band of Khitan soldiers, recruited warriors from Tangut, Tibetan, Qarluk, Karakhoja, Naiman areas and marched westward in search of asylum. Yelu Dashi was accomodated by the hospitable Tangut Western Xia Kingdom and the Buddhist Karakhojas. However, he was shut out by the Muslim Kara-Khanids near Gulja and Kashgar. Enraged, he subjugated Karakhanid states one by one and set up the Kara-Khitan suzereignty in Balasaghun on the Irtysh river, modern day Kazakhstan.
The Kara-Khitan Khanate, though harsh on the Muslim Qarluk-Uygurs, did not disposess all of the Kara-Khanid domains. Instead, the "Khitans" (most of them were actually Naimans, Tanguts and Qarluks speaking the same Turkic language as that of the Kara-Khanids) retreated to the northern steppes and had the Kara-Khanids act as its tax-collectors and administrators on Muslim sedentary populations (the same practice was adopted by the Golden Horde on the Russian Steppes). The Kara-Khitans even incorporated Kara-Khanid Muslim generals such as Muhammad Tai, who surrendered to the Naiman usurper Kushluk at the end of the Kara-Khitan Dynasty. Kushlug, the last ruler of the Kara-Khitan Dynasty, was especially harsh on the Muslim populations under his suzereignty. He went so far as to forcing conversions from Islam to Buddhism, the dominant religion of the ruling Kara-Khitans. The elite Kara-Khitans and their Naiman soldiers, on an interesting note, are very often Nestorian Christians, as suggested by the Syriac names of the Gur-Khans(Emperors), who at the same time had confucian titles and patronized Buddhist establishments. Kushluk's Naimans were perhaps heavily Nestorian Christian. The reason for force conversions into Buddhism was perhaps due to the underdevelopment of Nestorian institutions, making it unsuitable on sedentary domination. The "Christian" Kara-Khitan yoke on the Muslim Kara-Khanids also gave rise to the myth of Prestor John, who was supposed to vanquish the menace of Islamadom to the wishes of European Christendom.
Kushlug, a sworn foe of Genghis Khan, was crushed by the advancing Mongol army along with his Kara-Khitan military state. His vassels the Kara-Khanids offered meager resistance to the Mongols.
Several military commanders of Kara-Khanid lineages such as the father of Osman of Khwarezm, escaped Kara-Khanid lands during the Kara-Khitan invasion. In 1244, upon the invitation of the Egyptian Mamluks, Osman of Khwarezm marched on Jerusalem and liberated the holy city, on behalf of Islam, from the Crusaders.