The legend says that a local demon Kaumasura was living on the site and kept the population of surrounding areas in terror. It was predicted that the demon will be killed by a woman, and, indeed, it was killed by Parvati Devi, after which people started to bring offerings to her to the site. In the particular context of the fight with the demon, Parvati Devi is known as Mookambika Devi. The establishment of the temple is attributed to Parameshwara, who has drawn a chakra with his toe.
Historically, the temple is at least 1200 years old and it was mentioned in conjunction with the king Halugallu Veera Sangayya who installed an idol there.
Yet another legend says that Adi shankara once worshipped goddess Saraswati in order to bring her to Kerala, where none of her temples existed. When Devi answered his prayers, he told her his wish to bring her to kerala. She agreed to come, but only in one condition - that when he was walking she would follow and if he stops and looks back,she will stay there itself and will not continue. Adi shankaracharya agreed. So they started walking down from Kodachadri hills. While walking he could hear the sound of her anklets,so he knew that she was with him. Suddenly,the sound stopped. Adi shankara looked back in intense doubt. When he saw she was still with him, Adi shankara apologized, knowing that he had broken her condition. Devi said from now on she will bless her devotees here, in Mookambika. But he was determined to take her to Kerala. On seeing his determination she said "Fine then. In the morning, for nirmalya darshanam I will reside in Chottanikkara temple in Kerala and bless my devotees"."Then I will return to Mookambika".