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The Palacio Taranco is located in front of the Plaza Zabala, in the heart of Ciudad Vieja. It was erected in the early 20th century as the residence of the Ortiz Taranco brothers on the ruins of Montevideo's first theatre (of 1793), during a period in which the architectural style was influenced by French architecture. The palace was designed by French architects Charles Louis Girault and Jules Chifflot León who also designed the Petit Palais and the Arc de Triomphe in Paris. It passed to the city from the heirs of the Tarancos in 1943, along with its precious collection of Uruguayan furniture and draperies and was deemed by the city as an ideal place for a museum; in 1972 it became the Museum of Decorative Arts of Montevideo and in 1975 it became a National Heritage Site. The Decorative Arts Museum has an important collection of European paintings and decorative arts, ancient Greek and Roman art and Islamic ceramics of the 10th–18th century from the area of present-day Iran. The palace is often used as a meeting place by the Uruguayan government.

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Montevideo