The palace was built in 1905 by Sultan Alauddin Riayat Shah. The idea and designs for the palace came from the Sultan himself. Once the palace was completed, Sultan Alauddin moved his throne
there. He lived in the palace for 35 years, until his death in 1938.

Bandar Palace is situated in Kampung Bandar, about eight kilometres from Banting. The palace was built on a 12.96 acre land, and the ground was beautifully landscaped with pools and shades, giving it a grand and exclusive air. The palace itself has two levels, with 15 stately rooms. The Sultan was very involved in the decoration of the palace, giving the palace his personal touches. Family portraits adorn the walls, tracing the lineage of the royal family.

During construction, cengal wood and marble were used extensively. The durability of the timber is evident in that even after nearly a century, the palace still stands strong and sturdy.

The design for the palace is based on Malay art, with sharp roof lines, curved windows and ornately decorated stone staircases. However, the palace also shows various external influences. The exterior facades display western or European features while the wall decorations have mixed artistic influences from Chinese, Indian, as well as Islamic or Middle-Eastern origins.