One of the legends woven round this temple holds that there was a clump of trees called Abjaranya (the present Poornaprajna College campus) that existed at a distance of half a k.m. from the heart of Udupi town. There was a small lake nearby. A belief is doing the rounds that the Moon god performed penance in this spot. That is why the place came to be called Abjaranya. Immensely pleased with the Moon god’s penance, Lord Shiva appeared before him and granted his wish. Chandramouleeshwara temple surfaced in order to commemorate this event.
Chandramouleeswhara temple is small in size when compared to the neighbouring Anantheshwara temple. The literary work Madhwa Vijaya tells us that the temple used to be called Moodu Devalaya (Mahendradigalaya) as it lies to the east (moodu) of Shri Anantheshwara temple which is considered as the chief temple of the place.
Even to this day, the prospective Paryaya Swamiji visits Chandramouleeswhara temple before ascending the Paryaya throne, pays respects to the presiding deity and then proceeds to receive darshan of Lord Ananthasana and Sri Krishna.