The palazzo was erected in 1565 by an unknown architect. The first neo-Gothic improvements were made after 1840, when the young Archduke Frederick Ferdinand of Austria (1821–1847) reassembled the property of the Palazzo Cavalli-Gussoni which had become divided among heirs. He embarked on a complex project intended to give a more prominent Habsburg presence along the Grand Canal, as Austria-Hungary had been awarded the territories of Venice after the Napoleonic Wars. At his premature death, (unmarried), in 1847 the palazzo was bought by Henri, comte de Chambord, styled ""Henri V"" by Bourbon legitimists. Henri entrusted further restorations to Giovanni Battista Meduna; his portrait on the balcony, with Santa Maria Della Salute in the background, is in the Palazzo Ducale, Modena.
In 1878 Baron Raimondo Franchetti (1829–1905), (married to Sarah Luisa de Rothschild (1834–1924), daughter of Anselm Salomon Rothschild of the Vienna Rothschilds), bought the palazzo and commissioned further works by architect Camillo Boito, who constructed the grand staircase.
In September 1922 it was sold to the Istituto Federale di Credito per il Risorgimento delle Venezie by Franchetti's widow. Since 1999 it has housed the Instituto Veneto di Scienze Lettere ed Arti.- Lorenzetti, Venice and Its Lagoon: Historical-Artistic Guide (Rome: Istituto Poligrafico dello Stato, 1961) as translated and with supplementary content by Taryn Marie Zarrillo, 2012/13