According to legends, the current form of the temple was built by King Lakshmi Chand of the Chand dynasty in the 15th-16th century. It is said that initially, this temple was quite small, and King Lakshmi Chand expanded it into a grand structure. This place, situated at the confluence of the Gomti-Sarayu rivers and the vanished Saraswati, is known as the Tapobhumi of Rishi Markandeya. According to the Shiva Purana, in ancient times, Sage Vashishta, with his severe penance, was trying to bring the sacred river Sarayu from Lord Brahma's Kamandal to Earth. During this, he saw that Rishi Markandeya was deeply absorbed in his meditation near a stone called Brahmkapali. Vashishta feared that Markandeya's meditation would be disturbed. On the other hand, because Sarayu couldn't flow ahead, its waters started accumulating. To solve this problem, Sage Vashishta performed an invocation to Lord Shiva. Subsequently, Lord Shiva, along with Goddess Parvati, took the form of a tiger and approached Rishi Markandeya. When Markandeya heard the growl of the tiger, he opened his eyes and saw a tiger approaching a cow. To save the cow, Markandeya ran toward the tiger. At that moment, Lord Shiva and Goddess Parvati revealed their true forms. This allowed the waters of the Sarayu to flow, and from that time onwards, the worship of Lord Shiva began here.

It is believed that Lord Shiva is still present in this temple in the form of a tiger. It is said that visiting this temple can relieve all the sorrows of devotees. Women who are not having children often visit here, believing that the blessings of Lord Shiva will bring them the joy of motherhood.

Baghnath Temple is one of the ancient south-facing Shiva temples in North India. Here, Shiva and Shakti face the eastern direction. Lord Shiva and Goddess Parvati are present in the temple as self-manifested deities amidst the stream of water. The temple, constructed in the Nagara style, was built by King Lakshmi Chand in 1602. Later, in its courtyard, small Devakuliyas (miniature temples) were added, each containing deities dating from the 7th to the 16th century. The temple complex houses idols of Lord Maheshwar, Uma, Parvati, Mahishasura Mardini, Trimurti, Shivling, Ganesh, Vishnu, Surya Saptamatrika, and eternal avatars. There is also a tall idol of Lord Shiva on the premises.

Offerings to Lord Shiva in the temple, include bel leaves, pure water, milk, kumkum, sandalwood, fruits, flowers, and sweets. Lord Shiva is also offered kheer and khichdi.