Saichō requested, in 812, that Kūkai give him the introductory initiation, which Kūkai agreed to do. He also granted a second-level initiation upon Saichō, but refused to bestow the final initiation (which would have qualified Saichō as a master of esoteric Buddhism) because Saichō had not completed the required studies, leading to a falling out between the two that was not resolved; this feud later extended to the Shingon and Tendai sects.

Shortly after his enthronement, Emperor Saga became seriously ill, and while he was recovering, Emperor Heizei fomented a rebellion, which had to be put down by force. Kūkai petitioned the Emperor to allow him to carry out certain esoteric rituals which were said to "enable a king to vanquish the seven calamities, to maintain the four seasons in harmony, to protect the nation and family, and to give comfort to himself and others". The petition was granted. Prior to this, the government relied on the monks from the traditional schools in Nara to perform rituals, such as chanting the Golden Light Sutra to bolster the government, but this event marked a new reliance on the esoteric tradition to fulfill this role.

With the public initiation ceremonies for Saichō and others at Takao-san temple in 812, Kūkai became the acknowledged master of esoteric Buddhism in Japan. He set about organizing his disciples into an order – making them responsible for administration, maintenance and construction at the temple, as well as for monastic discipline. In 813 Kūkai outlined his aims and practices in the document called The admonishments of Konin. It was also during this period at Takaosan that he completed many of the seminal works of the Shingon School:

All of these were written in 817. Records show that Kūkai was also busy writing poetry, conducting rituals, and writing epitaphs and memorials on request. His popularity at the court only increased, and spread.

In 816, Emperor Saga accepted Kūkai's request to establish a mountain retreat at Mount Kōya as a retreat from worldly affairs. The ground was officially consecrated in the middle of 819 with rituals lasting seven days. He could not stay, however, as he had received an imperial order to act as advisor to the secretary of state, and he therefore entrusted the project to a senior disciple. As many surviving letters to patrons attest, fund-raising for the project now began to take up much of Kūkai's time, and financial difficulties were a persistent concern; indeed, the project was not fully realised until after Kūkai's death in 835.

The year 828 saw Kūkai open his School of Arts and Sciences (Shugei Shuchi-in). The school was a private institution open to all regardless of social rank. This was in contrast to the only other school in the capital which was only open to members of the aristocracy. The school taught Taoism and Confucianism, in addition to Buddhism, and provided free meals to the pupils. The latter was essential because the poor could not afford to live and attend the school without it. The school closed ten years after Kūkai's death, when it was sold in order to purchase some rice fields for supporting monastic affairs.