The peculiar colors and thick mist surrounding the volcano have earned Kelimutu a supernatural reputation. Local villages believe that the spirits of the dead go to rest in one of the lakes based upon the deeds performed on Earth. Consequently, the lakes are named Tiwi Ata Mbupu (Lake of Old People), Tiwu Nua Muri Kooh Tai (Lake of Young Men and Maidens) and Tiwu Ata Polo (Lake of Evil Sprits, or Enchanted Lake).
It is believed that the lakes change colors as a result of chemical reactions resulting from the minerals contained in the lake perhaps triggered by volcano gas activity.
The scenic lakes are a popular tourist destination and have been the source of minor phreatic eruptions in historical time. They were once featured on the rupiah - the national currency of Indonesia.

Source