Legend is that the place now the temple stands was hit by a drought once upon a time. So, the sage Agasthya started a yagna to please the rain God.
Then, a demon called Kumbasura tried to disrupt the yagna. At that time Sage Agastya prayed to Lord Ganesh for help. Lord Ganesh invoked Bheema- second of the Pandava brothers for killing the demon.
Lord Ganesh gave Bheema a sword and with that he killed the demon Kumbasura. Thereafter, on request from Bheema, Lord Ganesh took abode at this place.
The place became Kumbashi after the name of the demon Kumbasura.
The Ganesh idol, on a big rock, is said to be Swayambhu.
Temple is about nine kilometers from Kundapur.