The roots of the "Murdeshwar" is from back to the Ramayana era. It is the same place where Ravana worship the Lord Shiva to get the Atma-linga(Soul of Lord Shiva) to attain immortality and also had obtained it but lord Shiva put a condition before him to not put that Atma-linga on earth before reaching to Lanka, But other lords knew that if Ravana obtains immortality, he may trouble to the humanity, So Narada Muni tricked him with the help of Lord Ganesha, Ganesha went there as a Brahmin boy, Ravana asked for help to hold the Atma-linga till he worships before leaving to Lanka. Ganesh had already laid the Atma-Linga on the ground before Ravana could return after completing his rituals . When Ravana realized that he had been fooled, he attempted to destroy Atma-Linga in anger, due to which Atma-linga shattered into pieces and felled on different places nearby in Karnataka i.e. Sajjeshwara, Gunavanthe, Dhareshwara, and the covering cloth falls in Murudeshwar.
Temple has plenty of numbers of statues that depict the whole story about this place and inside the temple there is a small cave that explains the story with the light and sound effects so beautifully.