The palace, built by Sultan Abdülâziz, was designed by the famous Armenian palace architect Nigogayos Balyan and constructed by his sons Sarkis and Hagop Balyan between 1863 and 1867. This was a period in which all Ottomansultans used to build their own palaces rather than using those of their ancestors. Cıragan Palace is the last example of this period. The inner walls and the roof were made of wood, the outer walls of colorful marble. The palace is connected with a beautiful marble bridge to the Yıldız Palace on the hill behind. A very high garden wall protects the palace from the outer world.
The construction and the interior decoration of the palace continued until 1872. After he moved in, Sultan Abdülâziz was, however, not able to live long in his magnificent palace. He was found dead in the palace on May 30, 1876, shortly after he was dethroned. His successor, his nephew Sultan Murad V, moved into Cıragan Palace, but reigned after only 93 days. He, who was deposed by his brother Abdülhamid II due to alleged mental illness, lived here under house arrest until his death on August 29, 1904.
During the Second Constitutional Monarchy, Sultan Mehmet V Reşat allowed the parliament to hold their meetings in this building. Only two months after, on January 19, 1910, a great fire destroyed the palace, leaving only the outer walls intact. Called "Seref Stadi", the place served for many years as a football stadium for the club Beşiktaş J.K..
In 1989, the ruined palace was bought by a Japanese corporation, which restored the palace and added a modern hotel complex next to it in its garden. Today, it serves as luxury suites for the five star Kempinski hotel along with two restaurants that cater to guests.
The restoration of the Palace was considered a travesty by many, who criticized the government for allowing an independent company to restore a Turkish landmark at minimal cost and with absolutely no regard for the historical or architectural history of the building. The interior of the building was a very bright neon pink and contained several stores and areas for events such as banquets, many have criticized it for resembling the interior of an American shopping mall. The German Artist Rainer Maria Latzke redecorated the interior with a bright and colorful Mediterranean ambiance by equipping the interior swimming pool with beautiful murals.
The Palace was renovated again during the first quarter of 2007, now resembling the authentic palace with the baroqe style and soft colors.