Legend has it that Palanpur was first settled by a certain Prahladan, belonging to the Paramara clan of rajputs, who received the surrounding area as appanage from his elder brother who ruled from what is now Mount Abu. It is known as Prahladanpur in history of Jainism. Palanpur town later became the seat of the eponymous princely state in British India.

The town was once heavily fortified with seven gates providing the only means of thoroughfare; these are now in ruins. Of much more recent vintage are the other monuments that dot the town: the 'Keertistumbh' or "victory tower" was erected in the 1930s, as were the Jorawar palace and the Balaram palace. The well-known temple of Balaram Mahadev is situated about 20 km from Palanpur. The Jessore sloth-bear sanctuary, a reserve forest sprawling over 180 km². and home to several endangered species such as the Indian sloth-bear, leopard, wild boar and porcupine, lies about 45 km from the town.There is the famous Temple Ambaji which is 55 km from here. It is also the ancestral birthplace of the majority of India's diamond trading families. India's modern diamond cutting industry was founded by several Palanpuri Jain families who, in 1909, met to devise a means of lifting their village from poverty, eventually settling on the diamond trade. Because of its remote location, the families started their businesses in Bombay and, later, Surat. However, they still maintain close ties to their ancestral home. India's diamond industry, still dominated by Palanpuri Jains & Patels, now processes the majority of diamonds used in jewellery. Earlier Palanpur was known as flower city because of scents available here. Palanpur is well known in Gujarati literature with its shayars like Shunya Palanpuri, Agam Palanpuri, Shail Palanpuri. Famous Gujarati poet Chandrankant Bakshi also belongs to Palanpur. This city is also the birth place of several personalities such as Bharat Shah (a Bollywood film Producer and Financer), B.K.Gadhavi(A former Member of Parliament of Congress Party).

Palanpur is located at 24.17° N 72.43° E [1] It has an average elevation of 209 metres (685 ft).
Palanpur is also a city of temples.Jains, Hindus and Muslims have their famous pilgrim places in city.The Motu(big) and Nanu(small) Dehrasar (jain temple) are especially famous in Jains.
The Pallaviya Parshwanath Temple (Mota Dehrasar) was built by King Prahaladan (Founder of Palanpur city). It's Temple of 23rd Lord of Jainism, Lord Parshwanath. This place comes under 108 Parshwanth Temples, which gets special attention to the devotees of Jainism.

Palanpur is famous for it's relation to Jainism. Great Jain saint Jagadguru Shri Hirsurishwarji was born in this city. His house is located just opposite to Mota Dehrasar. Even the famous Jain saint Acharya Shri Somsundarsurishwarji was born in this city, who was the main inspiration behind world famous Jain Temple of Ranakpur, which is known for it's crafting.

Hindus offers their 'pooja' in Pataleshwar Mahadev (An ancient temple of Lord Shiva, it's said to belong some 16th century. It's also believed to be the birth place of King Siddharaj Jaisinh, who've ruled Gujarat from Patan.). Hindus have another famous temple called Mota Ramji Mandir, A temple dedicated to Lord Rama.