The original history of the temple takes us back to the 12th century when a Hindu king, Bhimdev, erected a Shiva temple at the site. The temple got destroyed during the Mughal invasion and the idols got buried inside the earth.
Another popular story is about Pandurang, a wealthy landowner whose cows grazed on the surrounding grounds. The cattle were looked after by a cowherd called Babul. A cow named Kapila had stopped giving milk and on investigating, it was found that Kapila was pouring out her milk at a particular spot. When dug, they found a Swayambhu, a huge natural Shivling along with idols of Lord Ganesh, Lord Hanuman and Goddess Parvati. This is the place around which the current temple was built. It is also believed that these idols were the ones from the centuries old temple that King Bhimdev had built. The mandir is referred to as Babulnath or Babul’s Lord in recognition of its discoverer.
It is also likely that the rich tropical foliage that grew on the hilly slopes, including a grove of Acacia Arabica, commonly known as ‘Babul’ served as an inspiration for the name, Babulnath.
About 200 years ago, there were some disagreements between the mandir’s pujaris and the Mumbai Parsi Panchayat which owned the lands adjacent to the mandir. The pujaris approached Shrimant Malharrao Gaikwad, the king of Baroda (Vadodara) who was residing on the neighbouring Walkeshwar Road to help resolve the differences with the panchayat. With his assistance they filed a legal case in the Bombay High Court to address their grievances. The court ruled in favour of the mandir and the judgement passed by the court can be seen today, inscribed inside the inner walls of the mandir. To mark this victory, some devotees from the Bhatia community, with the support of the affluent Bania and Gujarati trading communities assumed the responsibility of a new and more expansive mandir project in 1836.