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The name "Muli" may refer to either the city or the Indian Princely state of the same name. The Princely State of Muli had an area of 133 square miles (340 km2) and contained nineteen villages in addition to Muli city. The Parmars came to this area from Tharparkar District, now in Pakistan. The Parmars Lakh Dirji named it after a milkmaid who used to deliver milk to Lakh Dirji. The town is famous for the battle fought between the Chabhad and the Parmars for a wounded partridge.[5] Chabhhads wanted possession of the partridge, while the Parmars wanted to provide shelter to the wounded partridge. Later there was a big battle between Parmars and Chabhads, this war having historical importance because 140 Parmars got victory against 500 Chabhads of Sayla. The Parmars, while victorious, were sacked by an army from Sindh Province for providing shelter to some outcasts.

There is a temple of Almighty Sun called "Mandavrayji Mandir," which is also the spiritual center and "Kuldev" of Parmar Rajputs. It is said that one of the Parmar, King Sachoji, was a big donor and worshiper of Mandavrayji. He has a rule of giving anything which is asked of him. Once he was alleged to have been asked to give a lion alive, with the help of Mandavrayji, he was able to fulfill this promise. Till today, this fact remained as popular folklore in Muli village.