Bichitra Natak, considered to be the autobiography of Guru Gobind Singh, is one of the major sources for the information about the battle. However, its authorship is disputed by some scholars.
Azim Khan assigned the duty of collecting tributes to Mian Khan, the viceroy of Jammu. The duty of collecting tributes from Kangra and adjoining principalities was assigned to Alif Khan (or Alaf Khan).
Alif Khan first approached Raja Kirpal Chand (or Bhim Chand Katoch) of Kangra. The Raja told him that Raja Bhim Chand of Bilaspur (Kahlur) was the most powerful king in the region; if he pays tribute, the others will follow. Raja Dayal of Bijarwal (or Bijharwal) was persuaded by Kirpal to meet Alif Khan's demands. At Raja Kirpal's suggestion, Alif Khan proceeded towards Bhim Chand's capital. He halted at Nadaun and sent his envoy to Bhim Chand of Bilaspur with his demands. However, Bhim Chand refused to pay the tribute.
Raja Bhim Chand of Bilaspur formed an alliance with the rest of the hill Rajas, and also sought the support of Guru Gobind Singh. The Guru, who was against the idea of paying tributes to the Mughals, decided to support Bhim Chand.
The author of Bichitra Natak states that Bhim Chand was aided by Raj Singh, Ram Singh, Sukhdev Gaji of Jasrot, and Prithi Chand of Dadhwal, among others. He also states that the Rajputs of the Nanglua and Panglu tribes, and the soldiers of Jaswar and Guler, also participated in the battle.
Initially, the forces of Kirpal Chand overpowered Bhim Chand's forces. Then, Bhim Chand recited Hanuman mantras, and called all his allies, including the Guru. As the combined forces launched an attack, the enemy forces of Raja Dayal of Bijharwal and Raja Kirpal also advanced. In the ensuing battle, the forces of Mughals and Kirpal Chand were driven out into the river. Alif Khan and his warriors fled away.
According to Bichitra Natak, Guru Gobind Singh remained at Nadaun, on the banks of the River Beas, for eight more days, and visited the places of all the chiefs. Later, both the parties made an agreement and peace was established.
Later, Maharaja Ranjit Singh built a gurdwara on the spot where the Guru had pitched his tent. The Gurdwara was affiliated to Shiromani Gurdwara Prabandhak Committee in 1935. It is known as Gurudwara Dasvin Patshahi or Gurdwara Nadaun Sahib.