The temple stands close to the ruins of the palace of Raja Chandar Bhan Chand Katoch (d. 1660),[1] and is of least the same age, if not far older.

Until 1992 the temple was also derelict but has been restored, in very large measure as a result of the dedication and hard work of one man, Mr. P. D. Saini, a retired Class 1 officer, who worked on its restoration for 20 years after his retirement, with the assistance of a group of devotees.

The temple environs are of outstanding natural beauty and for that reason a destination for trekkers.

As per locals goddess Shri Chamunda Devi killed two demons Chand and Mund from the top of the mountain by throwing huge boulders on them, one can still find one of the boulder above the Shiva Temple located near existing Shri Chamunda Devi Temple on Dharamshala Palampur state highway.

Ramakrishna Gopal Bhandarkar says that Chamunda was originally an indigenous goddess worshipped by the Munda peoples of the Vindhya range of central India.