The area where Çırağan Palace Hotel Kempinski Istanbul now stands was known, in the 17th century, as Kazancioglu Garden. In the second half of the 16th century, High Admiral Kilic Ali Pasha had a waterfront house here, and in the 17th century (1648) Sultan Murat IV gave the imperial garden to his daughter, Kaya Sultan, and her husband, Grand Vizier Melek Ahmet Pasha. They had a small wooden mansion built here in which they would spend the summer months. At the beginning of the 18th century, Ahmet III presented the house and grounds to his son-in-law, Grand Vizier Ibrahim Pasha of Nevsehir, who organized torchlight fetes known as Çırağan Senlikleri (Çırağan Festivals) with his wife, Fatma Sultan. It was then that the area became known as Çırağan.

Lady Mary Wortley Montagu, wife of the English ambassador Edward Wortley Montagu, who lived in Istanbul between 1717-1718, wrote of the original Çırağan Palace in her letters, published after her death: "It is situated on one of the most delightful parts of the canal, with a fine wood on the side of a hill behind it. The extent of it is prodigious; the guardian assured me there were eight hundred rooms in it, I will not however, answer for that number since I did not count them; but 'tis certain the number is very large, and the whole adorned with a profusion of marble, gilding and the most exquisite painting of fruit and flowers. The windows are all sashed with the finest crystalline glass brought from England, and here is all the expensive magnificence that you can suppose in a palace founded by a young man, with the wealth of a vast empire at his command."

This original palace was to be torn down and rebuilt many times over the next two centuries. After the rebellion of 1730 which brought the great Tulip era to an end, the palace was left empty and fell into disrepair. It was finally taken over by Mahmut I and used as a banqueting hall for foreign ambassadors.

Selim III's Grand Vizier Yusuf Ziya Pasha bought the Palace, demolished it, and commissioned Kirkor Balian to build a new palace in marble which he presented to the Sultan in 1805. Selim III then gave the Palace to his sister, Beyhan Sultan, but she returned it. This palace, used as a summer house during the reign of Mahmud II, was again demolished and rebuilt on a large scale by Garabed Balian in 1835-1843. Although great quantities of wood were used, the main section was made from marble and stone and included forty classical columns.

When Sultan Abdulmecid decided to move his official residence to Dolmabahce Palace in 1855, the Ciragan Palace was torn down again , to be replaced by an imposig stone edifice designed by Nigogos Balian, and the foundations of the present palace were laid. However, due to financial problems and the "Kuleli olayi" (an uncovered conspiracy to assassinate the sultan) the construction of the palace was only half finished. It was only completed in 1857, after Abdulaziz acceded to the throne. Abdulaziz demanded his palace to be built in Arab style as a memorial to his reign. Artists were sent to Spain and North Africa to make drawings of the famous buildings there.

The story goes that the Sultan interfered with the design so much that the plans were redrawn twenty times before he was satisfied. The palace doors, each worth one thousand gold pieces, were so admired by "Kaiser Wilhelm" that some were presented to him as a gift and stand today in Berlin Museum. The finest marble and mother-of-pearl were brought from all over the world for the new Çırağan Palace; construction was completed at a total cost of five million Ottoman gold liras. But Sultan Abdulaziz only lived here for a few months before pronouncing it to be too damp to stay in and moving out again. This former residence of king was destined to share the fate of the declining Ottoman Empire.

Sultan Murat V, deposed during a military takeover, was held prisoner here with his family until his death in 1904. After this the palace became the new location for parliament and was opened on November 14, 1909. Parliament convened here for just two months before a fire, which broke out in the central heating vents, destroyed the entire palace in just under five hours, leaving only a stone shell. Priceless antiques, paintings and books were lost, along with many vital documents. In 1946, Parliament gave the palace, its outbuildings and grounds, to Istanbul Municipality where it was used as a dumping ground for sand and other construction materials. It was also used as a swimming pool and was a football ground for the local team. It seemed only a matter of time before the last remnants of the former palace would be torn down once and for all.