When King Carol I of Romania (1839–1914), under whose reign the country gained its independence, first visited the site of the future castle in 1866, he fell in love with the magnificent mountain scenery. In 1872, the Crown purchased 5 square kilometres (1.9 sq mi) of land near the Piatra Arsă River. The estate was named the Royal Estate of Sinaia. The King commissioned the construction of a royal hunting preserve and summer retreat on the property, and the foundation was laid for Peleș Castle on 22 August 1873. Several auxiliary buildings were built simultaneously with the castle: the guards' chambers, the Economat Building, the Foișor hunting lodge, the royal stables, and a power plant. Peleș became the world's first castle fully powered by locally produced electricity.
The first three design plans submitted for Peleș were copies of other palaces in Western Europe, and King Carol I rejected them all as lacking originality and being too costly. German architect Johannes Schultz won the project by presenting a more original plan, something that appealed to the King's taste: a grand palatial alpine castle combining different features of classic European styles, mostly following Italian elegance and German aesthetics along Renaissance lines. Works were also led by architect Carol Benesch. Later additions were made between 1893 and 1914 by the Czech architect Karel Liman, who designed the towers, including the main central tower, which is 66 metres (217 ft) in height. The Sipot Building, which served as Liman's headquarters during the construction, was built later on. Liman would supervise the building of the nearby Pelișor Castle (1889–1903, the future residence of King Ferdinand I and Queen Marie of Romania), as well as of King Ferdinand's villa in the Royal Sheepfold Meadow.
The cost of the work on the castle undertaken between 1875 and 1914 was estimated to be 16,000,000 Romanian lei in gold (approx. US$ 120 million today). Between three and four hundred men worked on the construction. Queen Elisabeth of the Romanians, during the construction phase, wrote in her journal:
Construction saw a slight slowdown during the Romanian War of Independence against the Ottoman Empire in 1877–78, but soon afterwards the plans grew in size and construction was quite rapid. Peleș Castle had its official Royal Ball of Inauguration on 7 October 1883. King Carol I and Queen Elizabeth lived in Foişor Villa during construction, as did King Ferdinand and Queen Marie during the construction of Pelișor Castle. King Carol II was born at the castle in 1893, giving meaning to the phrase "cradle of the dynasty, cradle of the nation" that Carol I bestowed upon Peleș Castle. Carol II lived in Foișor Villa for periods during his reign.
After King Michael I's forced abdication in 1947, the Communist regime seized all royal property, including the Peleș Estate. The castle was opened as a tourist attraction for a short time. It also served as a recreation and resting place for Romanian cultural personalities. The castle was declared a museum in 1953. Nicolae Ceaușescu closed the entire estate between 1975 and 1990, during the last years of the Communist regime. The area was declared a "State Protocol Interest Area", and the only persons permitted on the property were maintenance and military personnel.
Ceauşescu did not like the castle very much and rarely visited. In the 1980s, some of the timber was infested with Serpula lacrymans. After the December 1989 Revolution, Peleş and Pelişor Castle were re-established as heritage sites and opened to the public. Today, Foişor Castle serves as a presidential residence. The Economat Building and the Guard's Chambers Building are now hotels and restaurants. Some of the other buildings on the Peleș Estate were converted to tourist villas and some are now "state protocol buildings". In 2006, the Romanian government announced the restitution of the castle to former monarch Michael I. Negotiations soon began between the former king and the government of Romania, and were concluded in 2007. The castle is on lease from the royal family to the Romanian state. Peleș Castle receives between a quarter and almost a half million visitors annually.
Throughout its history, the castle hosted some important personalities, from royalty and politicians to artists. One of the most memorable visits was that of Kaiser Franz Joseph I of Austria-Hungary on 2 October 1896, who later wrote in a letter:
Artists like George Enescu, Sarah Bernhardt, Jacques Thibaud and Vasile Alecsandri visited often as guests of Queen Elizabeth of Romania (herself a writer also known under the pen name of Carmen Sylva). In more recent times, many foreign dignitaries such as Richard Nixon, Gerald Ford, Muammar al-Gaddafi, and Yasser Arafat were welcomed at the castle.
The castle was featured in the 2009 film The Brothers Bloom. The exterior of the castle is used to represent a large estate in New Jersey, the home of an eccentric billionaire played by Rachel Weisz.
The castle was featured in the Netflix original film A Christmas Prince and its two sequels, A Christmas Prince: The Royal Wedding and A Christmas Prince: The Royal Baby. It was also featured in the 2011 Hallmark Channel movie A Princess for Christmas and 2018's Royal Matchmaker.