Some weeks prior to Hazarat Khwaja Sahib’s demise Hazrat Khwaja Qutbuddin Bakhtiyar Qaqi visited to Ajmer to meet Hazarat Khwaja Sahib and stayed with him for some days. One the last day Hazarat Khwaja Sahib bade Hazrat Khwaja Qutbuddin Bakhtiyar Qaqi farewell and informed that after some days his worldly life will be over. His mission had brought him to Ajmer and here would be his final resting place. He then made up a Khilafat deed, presented it to Hazrat Khwaja Qutbuddin Bakhtiyar Qaqi and made him his Sajjada Nashin i.e. spiritual successor. He presented him with the cap and the robe and then gifted him the staff of Hazrat Khwaja Usman Harooni (Allah's Mercy be on him), his own copy of the Holy Qur’aan, prayer carpet and his sandals. Hazrat Khwaja Sahib advised him to keep up the trust of Allah, Allah’s Messenger and the line of Khwajas. Hazrat Khwaja Qutbuddin Bakhtiyar Qaqi took leave of his spiritual teachers with a heavy heart and returned to Delhi. After returned of Delhi. After twenty days he got the news that his master had departed from this world. ‘In-naa lil-laa-hi wa in-naa-i-lai-hir-raa-ji-un’ (to Allah we belong and to Him is our return).

On the night of 6th Rahab, Monday 627 AH, 21st May 1229 AD, Hazarat Khwaja Sahib after Isha Nazaaz, retired to his room , leaving instructions not to be disturbed and busied himself in worship and meditation. During the night, mystic sounds were heard and by morning they stopped. When the door remained closed during dawn prayers, the devotees and Khadims and other darveshes thought it unusual and broke open the door., They were grief sricken to see that the great saint, Hazarat Khwaja Sahib hat left this world. They perceived rediant letters written in Arabic on his forehead : ‘Haaza Habibbullah wa matafi hubbullah’ (He is a beloved of Allah and he died in the love of Allah). That very night some saints saw in the dream Allah’s Messenger saying that Hazarat Khwaja Sahib is a friend of Allah and he (Allah's Mercy be on him) Messenger) had come to welcome him (Hazarat Khwaja Sahib).

Hazrat Khwaja Qutbuddin Bakhtiyar Qaqi writes in his book that when he came to know about Hazarat Khwaja Sahib’s departure from this world he was praying. Whilst sitting on the prayer-carpet he dozed off and saw that Hazarat Khwaja Sahib was standing underneath the Throne of Allah. Hazarat Khwaja Sahib said that Allah had with His Mercy showered His Blessings upon him and allotted him a place near the angels beneath His Throne.

The funeral prayers were led by his eldest son Hazrat Khwaja Fakhruddin Abdul Khair (Allah's Mercy be on him). He was buried in the same room which he occupied in his lifetime and where he breathed his last. His funeral was largely attended by all class and caste of people. The annual Urs of Hazarat Khwaja Sahib is celebrated during the first six days of Rajab.