The palace was previously known as the Valley Palace due to its location. The palace had been the official residence between 1931 and 1933. However, upon completion of Istana Iskandariah, the Istana Kenangan was used to host royal receptions and where the palace guests stayed. It today houses the Royal Museum of Perak.
It was built in 1926 for Sultan Iskandar Shah by the Malay carpenter Enci Sepian from Bukit Mertajam, with the assistance of his sons Zainal Abidin and Ismail.