Dechencholing Palace was built in 1953 after the coronation of the third King of Bhutan, Druk Gyalpo Jigme Dorji Wangchuk, following the death of his father, Druk Gyalpo Jigme Wangchuck, in 1952. The third king's son Jigme Singye Wangchuck was born here on 11 November 1955. Later, one hundred thousand Raksha Thotreng rituals were performed at the palace as a beneficial rite for the public enthronement of the Jigme Singye Wangchuck in 1974.
The late Royal Grandmother, Druk Gyalpo’s mother the Dowager Queen Pemadechen (Ashi Kesang Dorji), popularly known as Gayum Phuntsho Choden Wangchuck, lived in this palace as a Buddhist nun. However, the present King does not stay in this palace, as the royal residence is now at the Samteling Palace (Royal Cottage).
The palace is frequently used for international delegations, especially those with India. Indian ambassadors regularly visit the palace to discuss international relations between India and Bhutan. It is also the venue for hosting luncheons and banquets for Head of the States and other important guests of Bhutan.