Palace Amusements opened in 1888 as a classic Victorian pavilion. Its main attraction was a carousel, with hand-carved wooden horses, giraffes, camels, goats and deer.  In 1895, the building was expanded to include a unique steam powered Ferris Wheel.  Riders embarked inside the building, and were transported outside where a short set of stairs led to a platform where they could enjoy a view of the Atlantic Ocean.  The platform was removed once the it began running on electric power in the 1920s, but the Ferris Wheel remained in operation until 1988.  At that time, it was the oldest continually operating Ferris Wheel in the world.

The Palace was expanded again in 1903, when a two story addition was constructed next to the Ferris Wheel.  The ground floor housed a hall of mirrors called The Crystal Maze, and the second story was a home for the Schnitzler family, who owned the Palace. A final expansion in 1956 added the bumper cars and funhouse areas.   It was at this time that the colorful paintings and neon lighted Tillie (named in honor of George Cornelius Tilyou, the founder of Coney Island's Steeplechase Park) first appeared here. 

Palace Amusements closed November 27, 1988. In the years following, a substantial portion of the roof collapsed, allowing water in to damage the structures inside.  In 2000, owing in large part to the still standing square Victorian pavilion portion of the building, Palace Amusements was added to the National Register of Historic Places.   Despite efforts to purchase the site and fund restoration, in June of 2004, the Palace was demolished.