Kollur is steeped in mythology. According to legend, Maharishi Kolan, enchanted with nature's beauty, decided to perform penance on the rock called Agnitheertham. Lord Shiva was delighted with Kolan's dedication and granted his wish that a Swayambu Lingam would appear for daily worship.
There is another story behind the temple. Adi Shankaracharya had a vision of Mookambika Devi and had the deity installed here. As he was meditating on the Kodachadri Hills, the Devi appeared before him in the form of an incarnation and asked him his wish, whence he replied that he wanted to install her deity in a place in Kerala. The Devi agreed to his wish but told him that she will follow Shankara and he should not look back till he reached the destination. In order to test him, the Devi deliberately stopped the sound of her anklets near Kollur and Shankar looked back. At this, she asked him to install her vigraha immediately at the place.