The original core of the building was linked to Giovanni de' Medici, future pope Leo X, who in 1503 transformed a preexisting 15th century palazzo. More enlargements were made in 1512. In 1533 the building passed to "Madama" Margaret of Austria, illegitimate daughter of Charles V and wife of Alessandro de' Medici. She gave her name to the palazzo, which she lived in.

In the 17th century Ferdinando II de' Medici gave the building its present shape, having it renovated and expanded by Paolo Marucelli. In 1755 Benedict XIV Lambertini bought the building from the Lorena family and made it the seat of the Governor of Rome: he opened the second courtyard, in the space today occupied by the Senate chamber. In 1853 Pius IX Mastai Ferrari had his Finance and Public Debt ministries in the building and in 1851 it became the headquarters of the papal postal service.

Since 1871, when the palace became the seat of the Italian Senate, much work has taken place on the building, including important alterations connected with its new functions.

The facade onto Corso Rinascimento has a door supported by columns and surmounted by a balcony and a heavly decorated frame with a frieze of angels. Inside the palazzo are worth mentioning the Senate Chamber painted by Cesare Maccari (1880). Palazzo Madama has a valuable library, with more than 500 000 volumes.