The Palace adjoins Holyrood Abbey, and the gardens are set within Holyrood Park. The Queen's Gallery was converted from existing buildings at the western entrance to the Palace and was opened in 2002 to exhibit works of art from the Royal Collection.

King Charles III spends one week in residence at Holyroodhouse at the beginning of summer, where he carries out a range of official engagements and ceremonies. The 16th-century historic apartments of Mary, Queen of Scots, and the State Apartments, used for official and state entertaining, are open to the public throughout the year, except when members of the royal family are in residence.

The Palace also serves as the official residence of the Lord High Commissioner to the General Assembly of the Church of Scotland during the annual meeting of the General Assembly.

The ruined Augustinian Holyrood Abbey that stands next to the Palace of Holyroodhouse was founded in 1128 at the order of King David I. The name derives either from a legendary vision of the cross witnessed by David I, or from a relic of the True Cross known as the Holy Rood or Black Rood, and which had belonged to Saint Margaret, David's mother. As a royal foundation, and sited close to Edinburgh Castle, it became an important administrative centre. A Papal legate was received here in 1177, while in 1189 a council of nobles met to discuss a ransom for the captive William the Lion. The Parliament of Scotland met at the abbey seven times between 1256 and 1410, and in 1328 the Treaty of Edinburgh–Northampton was signed by Robert the Bruce in the ‘King’s Chamber’ at the abbey, indicating that it may already have been in use as a royal residence. In 1371, David II became the first of several kings to be buried at Holyrood Abbey, and James II was born, crowned, married, and buried there. James III and Margaret of Denmark were married at Holyrood in 1469. The early royal residence was in the abbey guesthouse, and by the later 15th century the king occupied dedicated royal lodgings.