According to the testimony of one of the couriers of Bona Sforza such initial reconstruction from 1520 to 1530 cost 100,000 gold ducats and was ordered by Sigismund I the Old.

[5] Grand Duke Alexander Jagiellon, who later became King of Poland, moved his residence to the palace, where he met with ambassadors.

After his marriage to a daughter of Moscow's Grand Duke Ivan III, the royal couple lived and died in there.

Sigismund I the Old, after his ascension to the grand ducal throne, conducted his affairs in the palace as well as in Vilnius Cathedral.

[6] The palace reconstruction plan was probably prepared by the Italian architect Bartolomeo Berrecci da Pontassieve, who also designed several other projects in the Kingdom of Poland.

[7] Sigismund II carried on with the development work and lived there with his first wife Elisabeth of Austria, daughter of Ferdinand I, Holy Roman Emperor.

The plan was prepared by several Italian architects, including Giovanni Cini da Siena, Bernardino de Gianotis, and others.

The Grand Ducal Lithuanian Army recaptured the city six years later, by which time the palace had been destroyed by fire.

After the recapture of the city of Vilnius in 1660–1661, the palace was no longer a suitable state residence, and stood abandoned for about 150 years.

Soon after the Grand Duchy of Lithuania was incorporated into the Russian Empire, officials ordered the demolition of the remaining sections of the palace.

Only a small portion of the walls up to the second floor in the eastern wing survived, that were sold to the Jewish merchant Abraham Schlossberg around 1800, who incorporated them into his house.

After the November uprising of 1831, Schlossberg's house had been bought and taken over by Imperial Russian Army, which had presence in arsenals nearby.

[11] By the end of 19th century the fortress' ditch on former palace's site was covered with soil and turned into the city's park.

Archeological excavations started on the site, because Schlossberg's house was proposed for the People's Friendship Museum and for this conversion architectural investigation were needed to take place.

Sporadic archeological excavations took place already in 1964, when works for installation of central heating system in Schlossberg's house has been undertaken.

By the end of the decade, Kazys Napoleonas Kitkauskas suggested to use the palace as the National Gallery of Art (building of former Museum of Revolution has been used instead since 2009).

By 2002–2004 and 2005–2006 the palace project was changed mainly due to archeological findings found on the site and discussions about the architectural value of Schlossberg's house.

Also the reconstruction was financed by the state, while many authentic historic buildings (mainly manor houses) are in critical condition.

[19] A valuable paintings collection of Italian 15th-17th centuries painters was donated or loaned for exhibiting to the palace by Lithuanian businessman Pranas Kiznis.

On 28 November 2013, during the Eastern Partnership Summit in Vilnius, a dinner was held in the palace with many guests, including German Chancellor Angela Merkel; British Prime Minister David Cameron; French President François Hollande; Polish President Bronisław Komorowski; European Council President Herman Van Rompuy; European Commission President José Manuel Barroso; European Parliament President Martin Schulz; European Commission Vice-President and High Representative of the Union for Foreign Affairs and Security Policy Baroness Catherine Ashton; Commissioner for Enlargement and European Neighbourhood Policy Štefan Füle; Commissioner for Trade Karel De Gucht; the presidents of Latvia, Cyprus, Romania and Slovakia; the Prime Ministers of Czech Republic, Denmark, Estonia, Greece, Italy, Croatia, Luxembourg, Malta, the Netherlands, Portugal, Slovenia, Sweden, Hungary and Spain; as well as other high-ranking officials.

On 11-12 July 2023, a gala reception for Vilnius NATO Summit delegates was held in the Grand Courtyard of the Palace.