Khaplu Palace was built in 1840 by the Yabgo Raja Daulat Ali Khan of Khaplu after the Dogra of Kashmirwho captured the region decided to move the seat of government from the old fort. The site of the palace was chosen by rolling a large stone down from a nearby cliff; it stopped at the Doqsai village, and the palace was built there. The earlier fort was located near the location of the present-day palace. Khaplu Palace replaced the former fort as the royal residence after its completion. According to Jane E. Duncan, the people of Khaplu used to live inside this fort and were not allowed to build their homes outside its premises. This practice was changed after Maharaja of Kashmir took control of the area, resulting in a cessation of conflict among neighbouring rulers.
The former fort was captured by Murad Khan of Maqpon Dynasty, the ruler of Baltistan, in the Conquest of Khaplu in the 1590s by cutting off the water and other supplies to the fort. The troops of Murad besieged the fort for three months, resulting in the surrender of Rahim Khan, the 62nd Yabgo dynasty ruler of Khaplu. The fort again fell to invaders in the 1660s and 1674.
The Yabgo descendants continued to live there even after their kingdom was abolished in 1972. The last Raja of Khaplu who lived in the house was Raja Fatah Ali Khan, who died in 1983.
The town of Khaplu is located in the eastern part of Baltistan, at an altitude of 2,600 metres (8,500 ft) above sea level and is the administrative capital of the Ghanche District. River Shyok a tributary of River Indus, passes through the town, along which is the ancient trade route to Ladakh. Khaplu Palace is located north of the Khaplu town and south of the Shyok river in front of the high mountains of Karakoram range. A trek behind the palace in a ravine leads to the village of Pari in Skardu.