The original Episcopal Palace of Porto was built in the 12th or 13th century, as attested by some architectural vestiges like romanesque-style windows that exist inside the present building. In 1387, this mediaeval palace witnessed the marriage of John I of Portugal and Philippa of Lancaster.

During the 16th and 17th centuries the palace was greatly enlarged, and an old drawing shows it to be composed of a series of buildings with towers, as was typical for the architecture of Portuguese manor houses of the period. The present palace, however, is the result of a radical rebuilding campaign carried out in the 18th century, which turned it into a baroque work.

It is believed that the project for the Bishop's Palace was drawn in 1734 by the Italian Nicolau Nasoni, an architect with an extense work in Porto and surroundings. Building work started in 1737, under the direction of architect Miguel Francisco da Silva, and proceeded slowly. Due to financial constraints, the original project could never be completed and had to be reduced in scale. The works were only finished in the last decades of the 18th century, under the rule of Bishop Rafael de Mendonça, whose coat-of-arms is located on the main portal and the inner monumental staircase of the palace.

The building was used as residence for the bishops of the city until the 19th century. During the Siege of Porto of 1832, the bishop fled the city and the palace was used by Peter IV's troops as stronghold in the battle against Miguel I. Much later, between 1916 and 1956, when the bishops no longer inhabited the palace, the palace served as seat of the Municipality of Porto.