The Aga Khan Palace was constructed by Sir Sultan Muhammed Shah Aga Khan III, in the year 1892. Built in Yerwada, near Pune, it was intended to be a source of employment for the famine-struck villagers in the surrounding areas. Prince Shah Karim al-Hussayni Aga Khan IV, successor to and grandson of Sir Sultan Muhammad Shah Aga Khan III, donated the palace to the Government of India in 1969, in memory of Mahatma Gandhi and his philosophy.

The Aga Khan Palace is also known as the Gandhi National Memorial because of its close association with Mahatma Gandhi, who was kept at this palace under house arrest in the 1940s. A museum inside the palace complex has a rich collection of pictures and photographs of the important incidents in his life. There is also a wide assortment of his personal items, including utensils, clothes, mala, chappals (slippers) a letter written by Gandhi on the death of his secretary, and so on. A small amount of Gandhi's ashes are kept here as well.

This palace was one of the filming locations of Richard Attenborough's biopic of Gandhi, Gandhi.