There are two popular legends about the celebrations of Diwali festival.

Legend 1 : The killing of Narakasura Once upon a time there lived an asura called as Narakasura and he was ruling the kingdom of Pradyoshapuram. He prayed to Lord Brahma for several years and one day Lord Brahma appeared to him and blessed him with immese power. Narakasura also got a boon that he would face death only at the hands of his mother Bhumadevi.

After acquiring such an immense power, Narakasura became more evil and started torturing all the people on this earth. He won all the kingdoms in this earth and then fought a war against Lord Indra to acquire the heavenly world also. Lord Indra and all his men ran to Lord krishna and pleaded for help.

Lord Krishna asked his wife Sathyabhama, who was a reincarnation of Bhumadevi, to be his charioteer in the battle against Narakasura. During the battle Lord Krishna was hit by an arrow and fell unconscious. Then Sathyabama took the bow and killed Narakasura.

After knowing that his mother herself had killed him, Narakasura realised his mistakes and prayed for mercy to Lord Krishna. He also requested that his death should be celebrated as Diwali with lights and fireworks so that everyone learns a moral from his death.

Legend 2 : The Return of Lord Rama In Ramayana, Ravana an evil king from Srilanka took away Sitadevi when she was alone in the forest. Then Lord Rama, with the help of Veer Hanuman fought a battle against Ravana and his men to win Sita back.

After the battle and also the 14 years of life in the forest, Lord Rama, Sita and Lakshmanan returned back to the kindom of Dynasty on the day of Diwali. The people of Ayodhya celebrated Lord Rama's return with lights and fireworks.

Hence every year diwali is celebrated to mark the return of Lord Rama to the kingdom of Ayodhya.