[1][2] The original palace was built on the north side of the square around 1450 as lodging for foreign dignitaries and noblemen visiting Lisbon.
In 1536, during the reign of King John III, the Inquisition was installed in Portugal, and the palace eventually became the seat of the institution.
The palace had a prison and tribunal where the accused of heresy, witchcraft, and, particularly of secretly practising the Jewish faith (New Christians), were subjected to trial, persecution, torture, and execution.
Among the thousands of people accused by the Inquisition and held in the prison of the Estaus are important personalities like historian Damião de Góis, poet Manuel Maria Barbosa du Bocage and dramatist António José da Silva, nicknamed "the Jew", executed by the Inquisition in 1737.
Thanks to the efforts of writer Almeida Garrett, the palace was replaced in 1842 by the Teatro Nacional D. Maria II, built to a Neoclassical design by Italian architect Fortunato Lodi.