It stands on a rock above the eponymous town of Pottenstein in the Upper Franconian county of Bayreuth.

The spur castle is located within the Franconian Switzerland-Veldenstein Forest Nature Park at a height of roughly 410 metres on a west-facing hill spur between the valleys of the Püttlach and the Weihersbach, immediately southeast and above the town of Pottenstein, about 22 kilometres southwest of Bayreuth.

Around 1050, the village of Pottenstein belonged to Margrave Otto of Schweinfurt and, after his death in 1057, went to his third daughter, Judith.

Cuno died in 1055 and in 1057 Judith married Boto, the younger brother of Count Palatine Aribo II of the edelfrei family of the Aribonids.

There is no clear documentary evidence for an alternative theory that the castle was built around 918 by King Conrad I. Boto died in 1104 with heirs and was buried in Theres Abbey.

From 1227 to 1228 Pottenstein Castle served as a temporary residence for Saint Elizabeth, Landgravine of Thuringia.

From the beginning of the 14th century, the castle was managed by a vogt or advocate, who had his seat in the Vogteihaus in the lower ward.

In addition, without the castle, the peasants would have been without protection against the forces of the count Palatine, the margrave and the city of Nuremberg.

After the transfer of the diocese in 1803 to the Bavarian state during the secularisation period the castle fell into ruins.

In 1878, the castle came into the possession of Nuremberg pharmacist, Dr. Heinrich Kleemann, to whom the preservation of the ruins, which were then threatened by demolition, is owed.

The castle is now a privately run museum and residence where prehistoric and early historical objects are displayed along with a collection of weapons, books, autographs and three show rooms grouped as an ensemble.

On 2 April 1866, Max Söhnlein, who had just been released from Bayreuth Gaol, killed the wife of the castle guard with a pick in the presence of her infant.