There remains no historical writing as to when the present day Chanderi was factually established. However there is one overriding oral tradition in folk tale and religious belief as to how Chanderi came to be founded.
During the reign of Kriti Pal, the 11th Century Rajput king of the Paratihar Dynasty, who ruled over old Chanderi (known now as Boodhi Chanderi) there is told to have occured what we in the telling call, The Miracle Of Water.
The reign of the Paratihars, a Rajput Dynasty, lasted from the 8th to 13th century. The Paratihars at their height ruled from VIdisha (near Sanchi) to Gwalior and over other neighboring states which included Chanderi up till the 13th century. Historical inscriptions of the names of at least 13 of the Paratihar kings are preserved in dated constructive works and buildings. These include the 9th Paratihar king, Kriti Pal, from the 11th century.
According to folklore King Kriti Pal suffered from leprosy. He was in an advanced stage and no help could be offered by the vedhraj (aruvedic medicine) of that time. Kriti Pal was an avid sportsman and fond of hunting. One day on a hunting excursion while chasing down a deer he lost his party, found himself alone and without direction in the dense jungle, and wandering from place to place. Much time passed and the king could not find his way. He was without food or water. Suddenly he heard birds chirping and rode in that direction, and found himself in a clearing with a large pond filled with sweet water. (Legend states that this same pond is the Parmeshwar Taal pool, near the tomb of Shah Zadi ka Rauza.)Dismounting from his horse the king went to drink at the pond's edge and dipped his hand in the water. As he watched in amazement his leprosy inflicted hand was healed. Becoming overwhelmed by this miracle he waded into the pond and immersed himself. When he came out of the water the leprosy had left his body.
At that moment King Kriti Pal saw a young girl watching him. Now he was in the dense jungle and had not seen another person since he had lost his hunting party and he called to her but she would not respond. So he ran after her and tried to catch the young girl but she evaded him and led him on a long chase. Suddenly she stopped and the king came closer. Then in a warning tone, she commanded him, "Do not come closer. I am a Devi (an incarnation of the goddess) and your disease has been cured because of my blessing. Because of my miracle you will build a temple to me on that hill. It was there that the ancient King Shishupal had preformed a yaggya (holy Hindu fire ceremony) hawankund (holy fire) in a cave and it is there that the remnants of that hawankund are still. Now build my temple there but inside do not place an idol. The doors you will lock for nine days and they will not be opened. Inside I will emerge myself and after nine days when you open the doors you will see me in full form. The King promised to do all these things for the girl and then she disappeared.
On return to his kingdom Kriti Pal told about his encounter with the goddess which left everyone amazed for the king was removed of his leprosy. Celebrations were set and they rejoiced for days. During this time the king forgot about his promise, yet every night in his dreams the girl would appear and ask about his promise. He became so disturbed by these dreams that soon he set out and found the cave the girl had directed him and built a temple there. After it was finished the king, as commanded by the devi locked the doors and took the keys with him.
Now the young girl had told him not to open the doors to the temple for nine days, saying it would take her that time to emerge. However the king's curiosity got the best of him and he traveled to the temple to see for himself how it was that the goddess could create herself. Kriti Pal got to the temple before the nine days had passed and opened the doors. As he did a strong gush of hot air came rushing out that blew the king and his soldiers tumbling across the rocks and over a cliff. The king was knocked unconscious, and when he awoke his body was again inflicted with leprosy. Painfully he climbed back up the hill to the temple and looked inside. There in the cave from the rock was only the face of the goddess, it was all that had emerged. At that moment he heard her voice from the sky, "You have broken your promise", and from that time she never appeared to him or his kingdom again.
After the mysterious decline of boodi chanderi there was a migration from there to the present Chanderi, with a fort built above and city below this actual temple.