The village of Dera Baba Nanak is associated with Sri Guru Nanak Sahib Ji. It is about 1 kms from the Indo-Pakistan border and on the east bank of River Ravi, which is one of the main five rivers of Punjab.

Guru Nanak founded Kartarpur, which was nearby and has since been lost to the River Ravi, and visited the area which has become Dera Baba Nanak.

Guru Nanak spent his last years of his temporal life in this area. Dera Baba Nanak has many lanes and houses that have been preserved since the time of Guru Nanak.

Guru Nanak came here after his first udasi (tour) on December 1515 AD to see his family. His wife Mata Sulakhani and his two sons Sri Chand and Lakhmi Chand had come to stay here in their maternal home at Pakhoke Dera Baba Nanak, near Dera Baba Nanak, where Lala Mool Raj, father–in–law of Guru Nanak was working as Patwari. At that time this village was situated across the river Ravi.

During the 1800's, Maharaja Ranjit Singh provided a copper gilded throne to the Gurdwara and got its canopy covered with marble. The Gurdwara is in the centre of the town and comprises three separate memorials.