Tenders for the construction of the building were called for in 1878 and on 1 January 1879, the first foundation stone was laid by the then Lieutenant-Governor of Penang, Colonel Archibald Anson.

The building was designed by British Army engineers, Captains Innes and Satterthwaite, while its construction cost amounted to $35,000 (Spanish dollars).

[1] In 1880, the then Acting Lieutenant-Governor of Penang, Charles John Irving, who also simultaneously served as the President of the Municipal Commission of George Town, considered moving the offices of the Municipal Commission into the Town Hall, which was still under construction at that point.

[7][8][9] The inauguration of the city's first municipal building, held with much fanfare, was attended by the then Governor of the Straits Settlements, Sir Frederick Weld.

Meanwhile, the Town Hall continued to function as a venue for social events reserved for the European elite; local Asians were often denied entry.

In 1993, when it emerged that the Penang Island Municipal Council was considering the demolition of the Town Hall, the Malaysian National Museum intervened by gazetting the colonial building as a Grade 1 historical monument under the Antiquities Act.