'paramavidya' originates from Sanskrit, specifically the compound 'parama-vidyā', where 'parama' meant 'supreme' or 'highest' and 'vidyā' meant 'knowledge'.

'parama-vidyā' was used in classical Sanskrit texts (Upanishads, Vedanta) and entered English usage through 18th–19th century Indological scholarship and translations; it was adopted into modern English in transliterated form as 'paramavidya'.

Initially it meant 'supreme knowledge' in the original Sanskrit religious-philosophical context; in English it has largely retained that meaning, though it is often used specifically to refer to Vedantic or mystical knowledge leading to moksha (liberation).