The cellars of the Mermaid Inn date from 1156, believed to be the year that the original inn was built,[1] or shortly afterwards: Nikolaus Pevsner and English Heritage identified them as 13th-century.[2][3] In its original form, the building was constructed of wattle and daub, lath and plaster. It was a notable alehouse during medieval times, brewing its own ale and charging a penny a night for lodging.[4] The inn became popular with sailors who came to the port of Rye, and the port also provided ships for the Cinque Ports Fleet.[4]

In the 1420s, the inn was rebuilt but retained its cellars.[1] It underwent further renovation in the 16th century, much of which remains today.[4][5] Catholic priests who had fled from Continental Europe escaping from the Reformation during 1530 stayed in the inn, which is testified by j.h.s. (Jesus Hominum Salvator) inscribed in the oak-panelled "Syn's Lounge". Between 1550 and 1570, the Town Corporation organised many functions such as the "Sessions Dinner", the "Gentlemens Freeman's Dinner", "Mayoring Day" and the "Herring Feast".[4] Queen Elizabeth I was also a guest at the inn around this time.[1]

The inn had a strong connection with the notorious Hawkhurst Gang which used the premises during the 1730s and 1740s.[6] This large group of smugglers controlled territory from Kent to Dorset from their base at the Oak and Ivy Inn in Hawkhurst, but they used the Mermaid Inn as a secondary location.[6] There are a myriad of secret tunnels,[7] including one which ran from the cellars to the Old Bell Inn (built 1390) in The Mint, a street which runs parallel to the north of Mermaid Street. A revolving cupboard at the end of the tunnel in the Olde Bell would then be used by the gang for a quick getaway.[7] A resident of Rye remembered the smugglers as; "when the Hawkhurst Gang were at the height of their pride and insolence having seen them (after successfully running a cargo of goods on the seashore), seated at the windows of this house (the Mermaid) carousing and smoking their pipes, with their loaded pistols lying on the table before them; no magistrate daring to interfere with them".[4]

By 1770, the building ceased functioning as an inn.[8] By 1847, it was in use as a house and was owned by Charles Poile; the yard at the back, through which there was a footway leading to High Street, was called the Mermaid Yard.[9]

The inn functioned as a club in 1913, after it came under the ownership of May Aldington, mother of the novelist Richard Aldington. It was then a popular locale for many artists like Dame Ellen Terry, Lord Alfred Douglas (Oscar Wilde's "Bosie"), A.C. and E.F. Benson and Rupert Brooke.[4] In 1945, during World War II, the inn functioned as a garrison for Canadian officers. It was later purchased by Mr L. Wilson, a Canadian, who had been garrisoned there.[4] The Mermaid Inn had the honour of hosting a luncheon to Her Majesty the Queen Mother when she was named as the Lord Warden of the Cinque Ports during her visit to Rye in 1982.[4]

Under the name Mermaid House and The Mermaid Hotel, the Mermaid Inn was listed at Grade II* by English Heritage on 12 October 1951.[2] This defines it as a "particularly important" building of "more than special interest".[10] As of February 2001, it was one of 75 Grade II* listed buildings, and 2,106 listed buildings of all grades, in Rother—the local government district in which Rye is located.[11] The Mermaid Inn is presently owned by Judith Blincow and Robert Pinwill, who bought it in 1993.[4]

In late 1982, the exterior of the inn was used in the post Monty Python film Yellowbeard, alongside its neighboring church square and infamous cobbled Mermaid Street leading to the inn. The film turned out to be Marty Feldman's last ever project, after he died in Mexico during production.