Legend has it that a devout woman Kusuma offered worship to Shiva regularly by immersing a Shivalingam in a tank, as a part of her daily ritual worship. Her husbands first wife, envious of her piety and standing in society murdered Kusumas son in cold blood. An aggrieved Kusuma continued her ritual worship, and when she immersed the Shivalingam again in the tank, her son was miraculously restored to life. Shiva is said to have appeared in front of her and the villagers, and then on is believed to have been worshipped in the form of a Jyotirlinga Ghusmeshwar.
According to Shivapuran, in the southern direction, on a mountain named Devagiri lived a Brahmin called Brahmavetta Sudharm along with his wife Sudeha. The couple did not have a child because of which Sudeha was sad. Sudeha prayed and tried all possible remedies but in vain. Frustrated of being childless, Sudeha got her sister Ghushma married to her husband. On the advice of her sister, Ghushma used to make 101 lingas, worship them and discharge them in the near by lake.
With the blessings of Lord Shiva, Ghushma gave birth to a baby boy. Because of this, Ghushma became proud and Sudeha started feeling jealous towards her sister. Out of jealously, one night she killed Ghushma's son and threw him in the lake where Ghushma used to discharge the lingas.
Next morning, Ghushmas and Sudharm got involved in daily prayers and ablutions. Sudeha too, got up and started performing her daily choirs. Ghushma's daughter-in-law, however, saw stains of blood on her husband's bed and parts of the body drenched in blood. Horrified, she narrated everything to mother-in-law Ghushma who was absorbed in worshipping Shiva. Ghushma did not deter. Even her husband Sudharma did not move an inch. Even when Ghushma saw the bed drenched in blood she did not break down and said he who has given me this child shall protect him and started reciting ‘Shiva-Shiva'. Later, when she went to discharge the Shivalingas after prayers she saw her son coming. Seeing her son Ghushma was neither happy nor sad. At that time Lord Shiv appeared before her and said - I am pleased with your devotion. Your sister had killed your son. Ghushma told Lord to forgive Sudeh and emancipate her. Pleased with her generosity, Lord Shiva asked her another boon. Ghushma said that if he was really happy with her devotion then he should reside here eternally for the benefit of the multitudes in form of a Jyotirling and may you be known by my name. On her request, Lord Shiva manifested himself in the form of a Jyotirling and assumed the name Ghushmeshwar and the lake was named as Shivalaya thereafter.