The site was established in the 17th century when the Discalced Carmelites determined to build a convent dedicated to the Holy Cross using rather unique cork-based architecture. The monks built a boundary wall to protect the area and established a via crucis by dotting the entire area with chapels in a manner reminiscent of Jerusalem. In addition to caring for the primary forest, early on in their occupation the monks planted many cedars and created a dense forest.

In 1810, the French army was defeated in the Battle of Bussaco and the place became an operations centre for the Duke of Wellington. The legend goes that the Duke would tether his horse to the ancient olive tree opposite the convent and, since that day, it has been known as Wellington’s olive tree.

Following expulsion of the monastic order in 1834, Mata do Bussaco was managed by a priest and steward until 1888 when Queen Maria Pia ordered construction of a royal palace designed by Italian architect, painter and set designer, Luigi Manini. The work led to the church and cloister of the former convent being incorporated into the palace, creating a stark contrast between the simplicity of the former and the ornate Neo-Manueline décor of the latter.  The tiles on many of the walls are by Jorge Colaço and include images depicting the War of Independence and the Battle of Bussaco.

The garden (Jardim Novo) surrounding the palace was also developed during that period. The design is traditional with baroque influences and it has characteristic parterres and boxwood topiary hedges. Other key features such as a fountain (Fonte de Santa Teresa), the valley of ferns (Vale dos Fetos) and the spring (Fonte Fría) all date from the same period.

Following exile of the monarch, the palace became the palace hotel that visitors can enjoy today.

In the second half of the 19th century, exotic botanical species were introduced to the forest by mariners who brought them to the region from overseas. Consequently, the relict oaks and bay trees mingled with cypresses, cedars, eucalyptus trees and redwoods. Centuries later, the trees are rather majestic and one of the main characteristic features of the site.