The palace was built about 1606 on the shore of the Salzach river north of the medieval city walls, at the behest of Prince-Archbishop Wolf Dietrich Raitenau. The Archbishop suffered from gout and had a stroke the year before; to evade the narrow streets of the city, he decided to erect a pleasure palace for him and his mistress Salome Alt. Allegedly built within six months according to Italian and French models, it was initially named Schloss Altenau.

When Raitenau was deposed and arrested at Hohensalzburg Castle in 1612, his successor Mark Sittich von Hohenems expelled Salome Alt and her family from the premises. Mark Sittich gave the palace its current name from Italian: mirabile, bella: "amazing", "wonderful". It was rebuilt in a lavish Baroque style from 1721 to 1727, according to plans designed by Johann Lukas von Hildebrandt.

On 1 June 1815, the later King Otto of Greece was born here, while his father, the Wittelsbach crown prince Ludwig I of Bavaria served as stadtholder in the former Electorate of Salzburg. The current Neoclassical appearance dates from about 1818, when the place was restored after a blaze. Archbishop Maximilian Joseph von Tarnóczy resided here from 1851 to 1863. The father of Hans Makart worked here as a chamberlain. Joachim Haspinger (1776–1858), Capuchin priest and a leader of the Tyrolean Rebellion, spent his last year in a small flat.

The palace was purchased by the City of Salzburg in 1866. After World War II it was temporarily used for the mayor's office and housed several departments of the municipal administration.