Story of Shiva as Mrgavyadha is found in the 65th chapter of Brahmanda Purana. Shiva took the disguise of Mrgavyadha, or deer hunter, to test the devotion of Parshurama.
Parashuram once did intense penance in a deep forest to please Shiva and learn archery from him.
Shiva decided to test his devotion and appeared in the form of a deer hunter.
As Mrgavyadha, Shiva attempted to entice Parashuram and deviate from his mission. But all attempts were unsuccessful.
Shiva then showed his true form and blessed him. He also gave instruction in archery and gifted him the bow Pinaka.