Count Ferdinand Joseph von Herwarth had the palace built in classical Baroque style in 1712–18 to replace the medieval Hohenburg, which had been destroyed by fire in 1707 while occupied by Austrian troops during the War of the Spanish Succession.
It is located approximately 300 metres (330 yd) west, at the foot of the hill on which the old castle was built; stones from the ruin were used in the construction, and also to build the Lenggries parish church, St. James (German: St. Jakob), which was completed in 1722 and in which he is buried.
In 1857, after Prince Carl's death, the palace and estate were bought for only 32,000 guilders by Baron Carl von Eichthal, son of Baron Simon von Eichthal (born Seligmann), a banker who had financed art purchases by the future King Ludwig I of Bavaria and Bavarian loans to Greece and co-founded the Bayerische Hypotheken- und Wechselbank and several Bavarian railway companies.
In 1887 the estate belonging to Schloss Hohenburg encompassed 3,295 hectares (8,140 acres) and included an inn and other businesses in Lenggries, 150 farm animals, chiefly dairy cattle, cheese manufacturing and a brewery.
Following her service as regent before their daughter Marie-Adélaïde came of age, the palace then became the residence of his widow, Marie Anne of Portugal, until she and the remainder of the grand ducal family left for exile in the United States on 24 September 1939 following the outbreak of World War II.