In Kabir's era, a widespread popular belief held that dying in Kashi (Varanasi) guaranteed salvation, while death in Maghar led to rebirth as a donkey. Kabir is said to have deliberately chosen Maghar to challenge this superstition.

Tradition holds that after Kabir's passing, a dispute arose between his Hindu and Muslim followers over his funeral rites — Hindus wishing to cremate him, Muslims to bury him. When the shroud was lifted, only fragrant flowers were found in place of a body. These flowers were divided between the two communities — the Hindus cremating their share, the Muslims burying theirs. Both the Samadhi and the Mazar are said to have been built on this basis.

The present-day Maghar Mahotsav/Kabir Mahotsav traces its roots to the 'Kabir Nirvan Mela' held in 1937. From 1955-56 it developed into a two-day fair organised by local merchants, and after 1987 it was formally renamed 'Kabir Mahotsav' with district administration involvement. It is organised jointly by the Uttar Pradesh Department of Tourism, Department of Culture and the district administration.

A separate religious observance also called 'Kabir Nirvan Diwas', centred on Magh Shukla Ekadashi, is marked by certain specific sects (such as the community associated with Sant Rampal Ji). This is a particular sect's belief and should be understood as distinct from the government/community Kabir Mahotsav held at Maghar.