The legend related to the temple says that there occurred a fierce battle between the gods and demons in the "Savarni Manvantra." During the course of this battle, Chamunda who is believed to have emerged from an eyebrow of Goddess "Kaushiki", was entrusted with the tedious task of eliminating the demons "Chand" and "Mund". After a fierce battle, the goddess at last killed them. Taking the slain heads of both, she went to Goddess "Kaushiki." The pleased Goddess blessed Chandika and bestowed the title of Chamunda upon her. Originally, this temple was located in a dangerous remote spot. It was relocated to its current location about 400 years ago. The erstwhile king of the region along with his royal priest prayed the goddess and asked her permission to move the temple to some easily accessible location. The goddess readily agreed to this and directed the priest in his dream to install an ancient idol of the goddess in the new temple, to be worshipped as her form. The idol she told could be found, digging a certain spot. .
The king therefore sent out his men to get the idol. His men though found the idol but could not lift it. The goddess again appeared to the priest in a dream and told him that the king's men considered that idol to be a mere stone piece and were not thus able to lift it. She implored the priest to go to the place in a respectful manner and bow to the idol. To his utter surprise, the priest who did as told could easily lift the idol. Bowing to this miracle, he brought the idol to the temple and installed it there. The images of Lord Hanuman and Bhainro are installed on either side of the goddess. Scenes from the Devi Mahatmya, Ramayana and Mahabharata can also be seen in the temple. There also is a beautiful artificial lake near the temple which is full of fresh water from Baner River flowing nearby. Artificial sculptures of Goddess Saraswati, lions and swans in the lake add further to its beauty The interiors of the sanctorum of the deity have been beautified with carved silver sheets. The temple complex also has a handicrafts centre containing items of the wood carvings, wooden toys, black pottery, honey, Kangra tea and world famous Kangra Paintings.