The word "Diwali" is derived from the Sanskrit word "Deepavali" meaning a "row of lights". There are various stories regarding the origin of Diwali. For this reason people celebrate Diwali in different ways the in different regions of the country.


Emergence of Lakshmi
The Diwali story of Lakshmi Puja goes like this. It is believed that Goddess Lakshmi manifested herself on the day when the demons and deities were churning the ocean together to find out the 'drink of immortality', Thus Diwali festival is celebrated to commemorate the birth of the Goddess of Wealth. Whatever the reasons may be, however, Diwali, has always been associated with the worshipping of Lakshmi.

The Victory of Rama
Diwali also commemorates the return of Lord Rama along with his wife Sita and brother Lakshman from his fourteen year long exile after defeating the demon-king Ravana. In joyous celebration of the return of their king, the people of Ayodhya, the Capital of Rama, illuminated the kingdom with earthen diyas (oil lamps) and burst crackers


Krishna Killed Narakasur
Another Diwali legend talks about the Demon named Narakasur who had managed to acquire such awesome powers. He was killed and defeated by Lord Krishna. As a symbol of that victory Lord Krishna smeared his forehead with the demon king's blood. Krishna returned home early morning on the day of Narakachaturdashi.

The Legend of King Bali
There is another legend regarding Diwali. To curb King Bali's powers Lord Vishnu visited him in the guise of a diminutive brahman - "Vamana and pushed him down to the underworld. At the same time, for his generosity, Lord Vishnu gave him the lamp of knowledge and allowed him to return to earth once a year to light millions of lamps in order to dispel darkness and ignorance and spread the radiance of love and wisdom.

Source: www.diwalicelebrations.net