The area whereabouts the Çırağan Palace used to be known as the "Kazancıoğlu Gardens” at the beginning of the 17th century. The first structure of the region was the mansion that belonged to Admiral Kılıç Ali Pasha. Damat İbrahim Pasha of Nevşehir, the Grand Vezir, has built a summer mansion for his wife (the daughter of Sultan Ahmet III) in 1719 at the same spot.
The name of the palace, “Çırağan” is sourced from the flambeau entertainments that took place in this area between Beşiktaş and Ortaköy around the palace, the so-called “Çırağan Festivals”; “Çerağan” meaning “light spreading” in Persian.
Sultan Mahmut II reconstructed the area that by then had a mosque, a school and a Mevlevi lodge by demolishing the summer villa and building the first Palace. But then in 1857, Sultan Abdülmecid demolished the Palace that he had built, and made plans to rebuild a new palace but as his life span did not allow him, his wishes were carried out by his brother Sultan Abdülaziz. Sultan Abdülaziz finished building the Palace in 1871, and in the following years Çırağan became his residence, and then after him the residence Murat V.
During the time of Sultan Abdülaziz, the Empress Eugenie of France, who was said to be in love with the Sultan visited the most famous bath of the new Çırağan Palace during her stay in Istanbul on her way to open the Suez Canal in 1869.
The Ottoman parliament was opened with great ceremony in the Palace after the announcement of the Constitutional Monarchy II in the era of Abdülhamit II. The building of the Palace into a hotel was talked about in 1930s but it stayed unkempt for a long time after the big fire in 1910, until 1992 where it was put into service as a part of the Çırağan Palace Kempinski Istanbul.