The Palace was built and gifted by the Portuguese as a present to the king of Cochin around 1545. The palace was built to appease the king after they plundered a temple nearby. The landing of Vasco da Gama, the Portuguese explorer at Kappad in 1498 was welcomed by the Kochi rulers. They were given exclusive right to construct factories. The Portuguese repulsed the repeated attacks of the Zamorins and the Cochin Rajas practically became vassals of the Portuguese. The influence of the Portuguese was supplanted by the Dutch and they took over Mattancherry in 1663.

The palace is a quadrangular structure built in Nālukettu style, the traditional Kerala style of architecture, with a courtyard in the middle. Certain elements of architecture, as for example the nature of its arches and the proportion of its chambers are indicative of European influence in basic Nālukettu style.

The glory of the palace rests on the large number of murals, executed in the best traditions of Hindu temple art, which are religious, decorative and stylised. The murals have been painted in rich warm colours in tempera technique.

Portraits of the Rajas of Cochin, from 1864 onwards, are displayed in what was once the Coronation Hall. These were painted by local artists in western style. The ceiling of the hall is decorated with floral designs in woodcraft. Amongst the other exhibits in the palace are an ivory palanquin, a howdah, royal umbrellas, ceremonial dress used by the royalty, coins, stamps and drawings.

In 1951, Mattancherry Palace was restored and declared a centrally protected monument.