The museum was founded in 1946 following the donation of the castle and lands by the Earl of Plymouth.[ It opened its doors to the public in 1948, under the name of the Welsh Folk Museum. The museum's name in Welsh (also meaning "Welsh Folk Museum") has remained unchanged since that date, whereas the English title was revised to Museum of Welsh Life, thereafter St Fagans National History Museum, and again to its current title.
The brainchild of Iorwerth Peate, the museum was modelled on Skansen, the outdoor museum of vernacular Swedish architecture in Stockholm. Most structures re-erected in Skansen were built of wood and are thus easily taken apart and reassembled, but a comparable museum in Wales was going to be more ambitious, as much of the vernacular architecture of Wales is made of masonry.