The building was erected in 1860 and was originally the site of the Douglas Theatre, which was destroyed by fire in 1911. The current building opened in 1912 as Brennan’s (National) Amphitheatre & was constructed by architect & vaudeville promoter James Brennan in association with Nahum Barnet. Architect Henry E. White redesigned the interior in 1916 & from then on it was known as the Palace Theatre.

Further alterations were carried out in 1934 after which it was called the Apollo Theatre. In 1940 MGM purchased the building & for the next 30 years it was run as a cinema under the names St James Theatre & Metro. The last MGM film screened was ‘Kelly’s Heroes’ in October 1970. During the next few years it returned to a live theatre, which included a 39-week season of the musical "Hair" (1971 –72). It re-opened as the Palace Theatre in 1974 and once again showed films.

The church group known as the Revival Centre bought the theatre in 1980, it was then sold again in 1987 to a private business group that subsequently operated the venue as the Metro Nightclub.

On December the 4th 2007 the current owners (former owners & operators of St Kilda's Palace Entertainment Complex) moved in and began the restoration of the building now known, once again, as the Palace Theatre.