If the Daraxa rooms and the Patio de los Leones complex were intended to be the new personal residence of Charles V, a new palace would be required to meet the functional and representative needs of the court.

The idea of building the palace of Charles V arose in 1526, on the occasion of the emperor's wedding in Seville and his subsequent transfer to Granada during the summer of that year. The architect in charge of the project was Pedro Machuca and construction began in 1533, after some years of disagreement as to its design and location. The financing for the work came from taxes imposed on the Moors, in exchange for preserving certain traditions. Resources from the Casa de Contratación of Seville and the sugar industry of Granada were also used.

After 1572, due to the Moorish rebellion in the Alpujarras, the progress of the works slowed down and finally stopped in 1637, when the building was not yet completely covered.

In 1923, the architect and restorer Leopoldo Torres Balbas began a program of restoration of the palace, which was completed in 1958 with the covering of the building.

The palace has a square floor plan with a circular inner courtyard and was designed by Pedro Machuca. Its beginning in 1533 is remarkably early for its characteristics, which are framed in the mannerist style: Doric columns on the second floor, Ionic on the second, and a frieze decorated with bull's heads (bucráneos) in the Greco-Roman tradition. In certain aspects, it repeats or advances architectural solutions typical of Italian mannerism, which can be explained by Machuca's stay in that country and his ability to creatively develop certain elements of the incipient mannerist style.

The facade of the palace is totally Renaissance. The first level presents a Tuscan style with cushioning, while the second level exhibits decorative elements typical of the Baroque style. Above the main door, there are two winged statues of women reclining on the pediment. At the top, three medallions framed in green marble contrast with the stone. On the sides are depicted scenes from Greek mythology, specifically two of the twelve labors of Hercules. The iron rings at the bottom are merely ornamental, following the fashionable trend in Florence and Siena at the time.