According to a legend connected with this place, Sriman Narayana (Vishnu) gave darshan to numerous deities after killing a powerful demon, but unfortunately the image of this deity was lost in the course of time. Sri Bhashyakarar later in a divine command told the sixth Jiyar in his dream to go to a village near Kanchi and to find this image which was buried there. When the Jiyar visited this place, the king, believing in the divine command, donated one thousand four hundred acres of land to him. The pontiff performed certain propitiatory rites with potent mantras and miraculously the waterless land turned into a fertile place. As a result the king began to believe in the Divine power and came to realize his own mistake. The village subsequently came to be popularly known as Nirvalur. It is believed that a pond which was dug at that time is named after the Jiyar and has never dried up over the centuries. Subsequently, when the pontiff was teaching his disciples the Sri Bhashya (commentary on the Brahma Sutras), a snake appeared before them. The Jiyar, immediately realizing that this was Sri Ramanuja in his form as Adisesha, followed the snake and was led to a certain spot where, with the help of his students, he unearthed and recovered the precious image and installed it in this temple. In this way that precious image became the presiding deity of Sri Lakshmi Narayana Perumal Temple.
When this preceptor was making the necessary preparations for constructing this temple to consecrate this deity, he was asked by the then emperor of Vijayanagara to cure his daughter who was very ill. The preceptor started on this journey on an assurance from the ruler that the king that would undertake the construction of this temple. He left behind instructions regarding the exact measurements, architecture and other details regarding the construction. After curing the child, the Jiyar went for a long pilgrimage and when he came back, found that the temple had been completed.
Apart from the above mentioned stories several other legendary stories are also associated with it. Another legend connected with this temple states the story of a king of Bengal who worshipped here and was blessed with a child. Consequently he promised to build the main tower of this temple, in order to offer his veneration to Lord. But unfortunately he failed to keep his promise, even after many years. His son fell very ill, and by the time they reached Nirvalur, the boy passed away. However, the twenty-fifth pontiff of the Ahobila Math brought the boy back to life and considered to be the gift of God. Right from that time, Lord Lakshmi Narayana is worshipped as the presiding deity and is provided with due veneration.