The palace is on the site of an earlier residence, which had housed the former viceroy Don Pedro de Toledo, Marquis of Villafranca. Construction on the present building was begun in 17th century by the architect Domenico Fontana.^[1] Intended to house the King Philip III of Spain on a visit never fulfilled to this part of his kingdom, instead it initially housed the Viceroy Fernando Ruiz de Castro, earl of Lemos. By 1616, the facade had been completed, and by 1620, the interior was frescoed by Battistello Caracciolo, Giovanni Balducci and Belisario Corenzio. The decoration of the Royal Chapel of Assumption was not completed until 1644 by Antonio Picchiatti.

In 1734, with the arrival of Charles III of Spain to Naples, the palace became the royal residence of the Bourbons. On the occasion of his marriage toMaria Amalia of Saxony in 1738, Francesco De Mura and Domenico Antonio Vaccaro helped remodel the interior. It was Charles who build the other three palaces located more peripheral to the city center. Further modernization took place under Ferdinand I of the Two Sicilies. In 1768, on the occasion of his marriage to Maria Carolina of Austria, under the direction of Ferdinando Fuga, the great hall was rebuilt and the court theater added. During the second half of the 18th century, a "new wing", which in 1927 became the National Library Vittorio Emanuele III. By the 18th century, the royal residence was moved to Caserta, as that inland town was more defensible from naval assault, as well as more distant from the often-rebellious populace of Naples.

During the Napoleonic occupation was enriched by Joachim Murat and his wife, Caroline Bonaparte, with Neoclassic decorations and furnishings. However, a fire in 1837 damaged many rooms, and required restoration from 1838 to 1858 under the direction of Gaetano Genovese. Further additions of a Party Wing and a Belvedere were added in this period. At the corner of the palace with San Carlo Theatre a new facade was created that obscured the viceroyal palace of Pedro de Toledo.

In 1922, it was decided (by the Decree of the Minister Anile) transferring the National Library (until then in the palace of Museum), the transfer of library collections was made by 1925.

The bombing incurred during World War II and the subsequent military occupation of the building caused serious damage. Today, the palace and adjacent grounds house the famous Teatro San Carlo, the smaller Teatrino di Corte (recently restored), the Biblioteca nazionale Vittorio Emanuele III, a museum, and offices, including those of the regional tourist board.In 1888, King Umberto I of Savoy made changes to the western façade side of the building (fronting on Piazza del Plebiscito) displaying in niches a series of statues of prominent rulers of dynasties to rule from this city since the foundation of the Kingdom of Naples in the 12th century. The statues are displayed in chronological order with respect to the dynasty of belonging that has reigned in the city and this starts with Roger the Norman, when the city was an independent state (sculpted by Emilio Franceschi), and end with Vittorio Emanuele II, the largest in height and added last under the will of the king himself (sculpted by Francis Jerace). The other statues are Frederick II Hohenstaufen (by Emanuele Caggiano), Charles I of Anjou (sculpted byTommaso Solari (1820-1889)), Alfonse of Aragon (sculpted by Achille D'Orsi), Emperor Emperor Charles V (sculpted by Vincenzo Groan), Charles III of Spain (sculpted by Raffaele Belliazzi), and Joachim Murat (sculpted by Giovanni Battista Amendola). None of the statues refers to the Bourbon dynasty, not even Charles of Bourbon, who is actually engraved with the name of Charles III.