The palace is situated in the eastern part of the Park of Pena, which one has to pass through to reach the steep ramp built by the Baron of Eschwege that provides access to the castle-like building. The palace itself is composed of two wings: the former Manueline monastery of the Order of St. Jerome and the wing built in the 19th century by King Ferdinand II. These wings are ringed by a third architectural structure that is a fantastical version of an imaginary castle, whose walls one can walk around and which comprises battlements, watchtowers, an entrance tunnel and even a drawbridge.

In 1838, King Ferdinand II acquired the former Hieronymite monastery of Our Lady of Pena, which was built by King Manuel I in 1511 on the top of the hill above Sintra and had been left unoccupied since 1834 when the religious orders were suppressed in Portugal. The monastery consisted of the cloister and its outbuildings, the chapel, the sacristy and the bell tower, which today form the northern section of the Palace of Pena, or the Old Palace as it is known. King Ferdinand began by making repairs to the former monastery, which, according to the historical sources of that time, was in very bad condition. He refurbished the whole of the upper floor, replacing the fourteen cells used by the monks with larger-sized rooms and covering them with the vaulted ceilings that can still be seen today. In roughly 1843, the king decided to enlarge the palace by building a new wing (the New Palace) with even larger rooms (the Great Hall is a good example of this), ending in a circular tower next to the new kitchens. The building work was directed by the Baron of Eschwege.

The 1994 repair works restored the original colours of the Palace’s exterior: pink for the former monastery and ochre for the New Palace. In transforming a former monastery into a castle-like residence, King Ferdinand showed that he was heavily influenced by German romanticism, and that he probably found his inspiration in the Stolzenfels and Rheinstein castles on the banks of the Rhine, as well as Babelsberg Palace in Potsdam. These building works at the Palace of Pena ended in the mid-1860s, although further work was also undertaken at later dates for the decoration of the interiors. King Ferdinand also ordered the Park of Pena to be planted in the Palace’s surrounding areas in the style of the romantic gardens of that time, with winding paths, pavilions and stone benches placed at different points along its routes, as well as trees and other plants originating from the four corners of the earth. In this way, the king took advantage of the mild and damp climate of the Sintra hills to create an entirely new and exotic park with over five hundred different species of trees. The Palace of Pena was designated a National Monument in 1910 and forms part of the Cultural Landscape of Sintra, which has been classified by UNESCO as World Heritage since 1995.