The ship was built to a design by the Chief Naval Constructor, John L. Porter, based on his earlier work on the ironclad CSS Virginia, retaining the traditional curving ship-type hull, but with flat ends to the casemate.

Before dawn on 31 January 1863 Palmetto State and her sister ship CSS Chicora crept through thick haze to surprise the Union blockading force off Charleston.

Taking full advantage of her low silhouette in the darkness, the ironclad steamed in under the guns of the Union gunboat USS Mercedita, ramming as well as firing heavy shot point-blank into her hull.

A long-range cannon duel between the Confederate rams and other Union blockaders then took place, but little damage was inflicted by either side before Palmetto State and Chicora withdrew to safety within Charleston Harbor.

Palmetto State also joined in the defense of Charleston during Admiral Samuel Francis du Pont's unsuccessful 1–7 April 1863 attack on the harbor forts.