The Real Alcázar, a stronghold, preceded the Royal Palace. The building was dubbed "royal" after King Henry III of Castile made it one of his favorite palaces and altered its façade. His son Juan II erected the Royal Chapel and various outbuildings. The medieval castle was damaged during the War of the Castilian Succession (1476) when Juana la Beltraneja's soldiers assaulted the citadel.

Emperor Charles I renovated the Alcazar using Renaissance architecture, but Philip II hired Italian, French, and Dutch painters to promote major works. The Golden Tower and Royal Armoury, razed in 1894, were built around this time. Philip III, Philip IV, and Charles II continued this effort.

In 1700, Philip V of Bourbon assumed the throne and restored the Alcazar, calling it austere and obsolete. Queen Maria Luisa Gabriela of Savoy and Princess of the Ursins French-styled the apartments. The partial fire in the Alcazar on Christmas Eve 1734 was a convenient excuse to demolish it nearly totally (save for part of the foundations and some constructions) and build a new palace more in line with the time and the new monarchy.

The palace was built in 1738. The new palace would be made of masonry with vaulted roofs and utilize wood only for carpentry and roof structures to prevent fires.