It is located at the southern slope of the Kyffhäuser mountain range, on an artificial arm of the Wipper river, a tributary of the Unstrut.

On 15 May 1525 it was the location of the Battle of Frankenhausen, one of the last great battles of the German Peasants' War, when the insurgent peasants under Thomas Müntzer were defeated by troops of the allied Duke George of Saxony, Landgrave Philip I of Hesse and Duke Henry V of Brunswick-Lüneburg.

At the 450-years jubilee of the battle for Frankenhaus in 1975, the then-ruling Socialist Unity Party of Germany (SED) charged the rector of the Leipzig Academy of Visual Arts, Professor Werner Tübke, with the creation of a monumental panorama painting: Early Bourgeois Revolution in Germany, also known as the Peasants' War Panorama.

The Panorama was inaugurated by Kurt Hager and Margot Honecker, as deputy for her husband Erich, on 14 September 1989, eight weeks before the fall of the Berlin Wall and the eventual reunification of Germany in October 1990.

Today the Panorama Museum displays art shows and a collection of works of contemporary international artists.