The palace was built during the reign of Isabel II. Its owner was the Marquis of Portugalete and the Duke of Bailén, originally called the "Bailén Castaños", a title created in 1833 by King Ferdinand VII for of General Castaños, and declared perpetual and hereditary in 1847 by Queen Isabel II. General Castaños died childless, so the property passed to the peerages of Luis Ángel de Carondelet y Castaños, his sister's son, and her husband the Baron of Carondelet, the 2nd Marquisate of Portugalete.
The design and construction were executed by French architect Adolfo Ombrecht. It had a ballroom decorated with flowers, a chapel, a billiard room, a hall of portraits, bathrooms decorated in Pompeian style by the painter Oreste Mancini, a gallery museum, a music hall and a large number of dependencies. The palace contained tapestries and paintings by Francisco Goya, Vicente López, Palmaroli, Eduardo Rosales, Bartolomé Esteban Murillo, Francisco Pradilla Ortiz, Madrazo, Antonio Gisbert, José Casado del Alisal, and the renowned sculptor Mariano Benlliure. The palace featured Carrara marble, ebony and ivory furnitures, colorful chandeliers and windows.[2]
The palace was built in the center of its lot, and had an inner courtyard with garden.
The palace was built of alternating stone and brick. stone primarily for corners, gables, cornices, doorways and windows. To highlight the design of the central body, the facade of the calle de Alcalá formed a curved space.
At the death without descendants in 1882 of the third Duke of Bailén, Eduardo de Carondelete y Donado, the titles passed to his niece, Encarnación Fernández de Córdoba. The palace and its contents however were inherited by his widow, María Dolores del Collado y Echagüe, who really gave it luster and fame, especially through her celebrated parties and meetings.
For many years the palace was a meeting place for the wealthy and political classes of the time, such as Cánovas del Castillo. In its halls national politics were so commonplace that once, leaving Cánovas this palace with a large representation of the Government, a reporter asked: "Mr. President, had there a been Council meeting?"
The palace was demolished after the Spanish Civil War to make way for new forms of urbanism and in 1946, the building of the National Insurance Institute, later called the National Institute of Health, was built in its place.
