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Many legends about how the name 'Alice Cooper' came about have been told through the years.

Here is the version given by Alice in 'Me Alice':

"The Nazz, it turned out, was already taken. This time we wanted a distinctive name, something that would draw attention to us but not a rock cliché. One boring January evening I said, "How about Alice Cooper?" and everybody said, "No, that's ridiculous." About half an hour later Dick Christian said, "What about that name, Alice Cooper?" But nobody even wanted to discuss it. I thought it was perfect. It was so American and so eerie at the same time. It had the same ring to it that Lizzy Borden did. I knew that if there was really an Alice Cooper somewhere chances were she was an ax murderer.
We forgot about it for a few days until Dick Christain dragged us all over to Alice Paxton's house. Both Charlie Carnal and Dick were friendly with Mrs. Paxton's daughter, who claimed her mother was a clairvoyant and could help us solve our problems. Alice Paxton also had her Ouija board, which she hadn't used in a few years, and we started asking it questions. I wasn't even working the board when we asked if there was a spirit in the room. There was.
The board spelled out the name Alice Cooper.
For three hours everyone drilled the board on Alice Cooper, and we came up with the following story (with a few additional details added by me over the course of some five thousand interviews):

In the early sixteen hundreds scientists and occultists became aware of a celectrial disturbance which seemed to have a strange concentrated effect on the British Isles. There was an odd feeling of unrest and suspicion in the countryside. In the midst of this general feeling of alarm, on February 4 (my birthday), 1623 (not my birthday), in Sussex, England, Alice Cooper was born.
She was the daughter of well-to-do parents and a very strange child. She seemed always to be listening to voices that no one else could hear, often smiling secretly as if she knew the answer to some cosmic joke.
Much of Alice's time was taken up with her sister Christine, who was three years older than she. Christine taught her magic, including the use of strange plants that grew in abundance in the forest, and the techniques of speaking ancient words of old that could make thunder roll and fire burn. On Alice's twelfth birthday her parents died in a mysterious fire, their charred bodies never recovered from the blazing house. One year later little Alice was to witness the death of her sister, Christine, who was accused of being a witch and burned at the stake by the villagers.
A week later little Alice herself was dead, poisoned perhaps by her own hand so she could join her sister Christine in the other world. She was only thirteen years old. Pretty good, huh? Well, it really worked at the time.

I was thrilled with the name, but Neal Smith was disgusted. He finally thought he had gotten into a group that was going to go somewhere, do something important, get him a Rolls-Royce and a mansion in the country and now we were changing our name to something stupid like Alice Cooper!

While apparently, there are elements of truth to the Ouija board story, much of it can be taken with a grain of salt. However, this story did serve the band very well and is still regularly quoted to this day.

The rumour about the Ouija board and the seance was only a story that they created to make the whole thing mystical.

Not exactly. The witch part of the story was fabricated. However, there are aspects of truth concerning the Ouija board (exactly what is still unclear to this day). The name Alice Cooper was something that Alice just came up with.
(Renfield, February & March 1997)

From a letter from Michael Bruce in March 1968:

"We are going to play at Cheeta wed and then leave after that and go to Phx. A promoter in Phx, hs given us charge of his club. I don't know if I told you that we changed the name of the group, Alice Cooper is the name. Vince has changed his name to Alice Cooper and rotted his hair up. The club in Phx, is called Alice Cooper, after us, we run the club and give orders."