Built some four centuries ago, the Baba Atal Gurdwara is a touching commemoration of the young life of Baba Atal Rai (1619–1628), the son of Guru Hargobind. Its nine stories echo his nine years of life before his death in 1628. According to Sikh legend narrated in the Gurbilas Chhevin Patshahi, Atal Rai revived a friend named Mohan who was bitten by a snake and subsequently died as a result of the injury. Upon hearing the news of the event, his father was displeased as the performance of miracles is rebuked by the Sikh gurus. After being admonished by his father for the miracle, Atal Rai retired himself to the bank of Kaulsar and died on 13 September 1628 with the aim of leaving this world. His remains were cremated on the bank of Kaulsar. The tower was built in his memory and to commemorate his short life. Even though Atal Rai died as a child, he was given the honourific ‘baba‘, usually given to aged and respected men, in commemoration for his spiritual powers.
Initially a small samadhi (Indic cenotaph) was constructed at the site, which eventually transformed into a gurdwara. In India, it is a common practice for the tombs of saintly individuals to be gradually transformed into religious shrines as time goes by. It was during the time of Maharaja Ranjit Singh that the present-day, nine-story tower was constructed. However, Kanwarjit Singh Kang believes the present-day tower had been erected between circa 1775–1800 (last quarter of the 18th century). Repairs, extensions, and renovations to the structure were conducted in the coming years from time-to-time. The first two stories of the tower were constructed under the purview and direction of Jodh Singh Ramgarhia.
The gurdwara was famed for its langar and many pilgrims and destitute people visited it to partake in it, where it was freely distributed to all visitors. This led to the coining of a saying related to Baba Atal in the local Amritsari vernacular.