Originally, the town hall of the new town of Erlangen was to be built on the south side of the market square. Instead, the bread, meat and flour stalls were located here until they were relocated. It was not until 1728 that construction of the monumental palace for Privy Councillor and District Administrator Christian Hieronymus von Stutterheim began, with financial support from Margrave Georg Friedrich Karl. The shell of the building was completed in 1730. The design for the palace probably came from Wenzel Perner, who was also involved in the construction of the Old and New Town Church in Erlangen.
In 1755, the Stutterheim Palace became the property of Court Councillor Johann Gottfried Groß. After the devastating fire in Erlangen Castle, the Margrave's widow Sophie Caroline Marie spent her last years here from 1814 to 1817. From 1836, the palace served as the town hall of the city of Erlangen. In 1893, the Nuremberg painter Friedrich Wanderer made four glass paintings for the meeting room with motifs from Erlangen's history, which are now in the possession of the Erlangen City Museum. A fire in 1921 damaged parts of the stucco, which then had to be partially replaced. In the course of the nationwide pogroms against Jews, on November 10, 1938, SA troops brought Jews from Erlangen and the surrounding area into the courtyard of the Erlangen City Hall, where they had to wait for hours outside while their homes and business premises were looted. The action was documented photographically by the National Socialists.
Since the City Hall moved to a new building in 1971, the palace has housed the Erlangen City Library. The municipal gallery has been on the ground floor since 1974, which now operates under the name Kunstpalais Erlangen. In addition, the palace provided space for the office and library of the Erlangen Local History and Heritage Society until they moved to the so-called Museumswinkel in Luitpoldstrasse.
The building was built in 1728–30 based on designs by Wenzel Perner for governor Christian Hieronymus von Stutterheim. After the castle fire on January 14, 1814, the palace served as the retirement home of Margravine Sophie Caroline Marie until 1817. Between 1836–1971 the building was used as a town hall. In addition to the city library, the magnificent building now houses the art palace with the city collection.