According to mythology, a Buddhist mythical character Manjushree cut the hill in the valley's south, allowing the lake's water to drain off, thereby creating land that was duly occupied by people.

Folklore suggests that this "cut" in the hill is the Chobar Gorge, a narrow passage from which the Bagmati River exits the Kathmandu Valley.

In order to allay his wrath, the locals living near Taudaha built an underwater palace, studded with precious stones and riches beyond imagination.

The king also promised to protect the humans living around the lake, on the condition that the tranquility of his water abode never be disrupted.

The lake, arguably the only clean water body remaining in the Kathmandu Valley, is a stop over for numerous migratory bird species.