The legend of Manikaran states that while roaming around, Lord Shiva and Goddess Parvati, once chanced upon a place that was surrounded by mountains and was lush green. Enamoured by the beauty of the place, they decided to spend some time there. It is believed that they actually spent eleven hundred years here.
During their stay here, Goddess Parvati lost her mani (precious stones) in the waters of a stream. Upset over the loss, she asked Shiva to retrieve it. Lord Shiva commanded his attendant to find the mani for Parvati. However, when they failed, he was extremely angry. He opened his third eye, a tremendously inauspicious event which led to disturbances in the universe. An appeal was made before the serpent god, Sheshnag, to pacify Lord Shiva. Sheshnag hissed thereby giving rise to a flow of boiling water. The water spread over the entire area resulting in the emergence of precious stones of the type Goddess Parvati had lost. Lord Shiva and Goddess Parvati were happy at the outcome.