During the middle ages the site was just a market place outside the city walls. In the 1560s, King Philip II asked Juan de Herrera, architect of the Escorial, to turn the market place into a real square. It would take until 1617, during the reign of King Philips III, before the construction of the new Plaza Mayor started. Under the direction of Herrera's successor, Juan Gómez de la Mora, the plaza was completed in just two years.
The most prominent building on the Plaza Mayor is the Casa de la Panaderia, the seat of the powerful baker's guilt. It was completed as early as 1590, before the square was even laid out. Its current design with symmetric towers dates from after the last fire in 1790. The colorful allegoric murals were only added recently, in 1992.