Mahabali, despite being a demon king, was said to be generous and benevolent.
It is said that Mahabali defeated the gods and took over the three worlds.
This made gods resent him and urge Lord Vishnu to help them in their fight against the demon king.
Mahabali was a devotee of Lord Vishnu and the god found it difficult to take sides in the battle.
Vishnu, in his Vamana (poor Brahmin) avatar, visited Mahabali.
He made the king agree to his wish.
Vamana asked for property rights over a piece of land that measures "three paces".
Mahabali agreed to this wish.
The Vamana avatar then grew in size and covered everything the king ruled in just two steps.
To keep his word and honour, Mahabali offered his head for the third step.
Impressed by his gesture, Lord Vishnu allowed him to return to Earth once every year.
This homecoming is celebrated as Onam.