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Plaza de la Villa was one of the main centres of medieval Madrid because of its location halfway between the Ports of Guadalajara and the Vega, two of the major entrances to the city during the Middle Ages. In the fifteenth century, Plaza de la Villa adopted its current name, coinciding with the granting of the title of "Noble and Loyal", received by Madrid by King Enrique IV of Spain (1425-1474).

The named Casa de la Villa occupies the former site of the houses of the Marquis del Valle, Mr. Juan de Acuña, where the Duke of Osuna lived (1574-1624) when, the Holy Thursday of 1621, he was taken prisoner by order of the king. Despite the different views, it is considered that its construction began around 1645, from a design by the architect Juan Gómez de Mora, and was completed in 1693. The gallery of Tuscan columns on the façade facing the calle Mayor is the work of Juan de Villanueva (1789).

From the date of completion of works it was the home of Madrid City Hall until, on November 5, 2007, the Mayor of Madrid moved to the Cibeles Palace, leaving this building reserved almost exclusively by the Municipal Council.