Qazi Rustam Khan had bought her from her parents while she was a child. The Qazi gave her the education of Islam and sent her to Saint Mian Mir for higher schooling.
Saint Mian Mir was sufi saint. He had no prejudice against any religion. He had a very deep love with Guru Nanak's Institution. It was usual for him to go to Amritsar to meet the Guru. Whenever the Guru visited Lahore, he never went back without seeing Saint Mian Mir. Due to these meetings, Saint Mian Mir knew a large number of Guru's verses by heart which he used to quote to his disciples. Bibi Kaulan also remembered some of the verses by heart which she used to recite by herself for her pleasure. Her attachment to the Guru's institution increased further when she saw the Guru and the Sikhs came from Amritsar to Lahore at the time of the plague epidemic and nursed the patients with their own hands.
One day, Qazi Rustam Khan heard Bibi Kaulan reciting Guru Nanak's verses at home. He rebuked her and said "Do not recite these verses of the infidels in future." Bibi Kaulan Said, "Dear father! Saint Mian Mir bows in all humility to the man you call an infidel and thinks it a privelege to seat him by his side. It is unbecoming to call the man an infidel whome the saint hold in such esteem." The qazi gave a sound thrashing to Bibi Kaulan on hearing the praise of the Gurus from her and said, "I do not want that you recite the verses of these infidels even unintentionally." Between her sobs Bibi Kaulan said, "You may beat me to death but I cannot live without reciting these verses."
Qazi Rustam Khan went and asked other Qazis, "Kaulan persists with reciting the verses of the infidels inspite of my beating. What remedy shoul be adopted? They said, "It is a great sin for the Momins (believers of Islam) to praise the infidels and recite their word. Kaulan should be beheaded for this sin." When Saint Mian Mir heard about the decree of beheading of Bibi Kaulan, he sent her to the Guru's institution at Amritsar through Abdul Yaar Shah where the homeless were protected. Guru Hargobind made arrangement for separate accommodation for Bibi Kaulan. She had no fear at Amritsar of being killed by the order of the Qazis. To immortalize the memory of Bibi Kaulan's resolve to remain firm on her words, the Guru constructed a pool named Kaulsar in 1627 A.D. Bibi Kaulan died at Kartarpur in 1630 A.D