Originally built in the 12th C., Palazzo Sasso, like many other buildings along San Giovanni del Toro, was part of the aristocratic quarter of Ravello during the Middle Ages and the Renaissance. Some original rooms remain, such as the entrance hall and a small bathroom used as a cellar in the Restaurant. The Palazzo Sasso owes its name to the prosperous Sasso family from Scala, who were descended from San Romoaldo, founder of the Cistercian order, and San Dominico Sasso, the successor to Saint Dominico who created the Dominican order. Another ancestor was the legendary Gerardo, founder of the Knights of Malta. The "Ravello" branch of the family was linked to Cardinal Ottavio, Governor of the Emilia Romagna region during the reign of Pope Pius the III.

The Sasso family settled in Ravello in about in 1710 when Domenico Diego purchased the remains of the Palazzo Sasso from the noble Bonito family and subsequently restored it. In 1756, his son, Andrea, built the chapel, dedicated to Maria Maddalena Penitente, which is now the lobby of the hotel. Andrea died in 1758 without an heir. The Palazzo was then abandoned until the beginning of the 19th Century when it was purchased by a rich industrial family called Camera. In the mid-19th Century, the first foreign visitors began to arrive, such as Francis Nevil Reid in 1851 and Richard Wagner. When James Becket bought and rebuilt Villa Cimbrone in 1904, Ravello attracted many prominent people, including Virginia Woolf, E.M. Forster, Maynard Keynes, D.H. Lawrence and Andre Gide. The potential for tourism was not lost on the Camera family who, following the example of other local families, converted the Palazzo into a Hotel. In 1928 the Viullmieur family assumed the management of the hotel.

During the next half-century, Palazzo Sasso was known as Hotel Palumbo and its guests numbered Kings, Queens, aristocrats, poets and writers. On the declaration of war against France (in 1939), the French-born Duchess Anna of Aosta (wife of the Viceroy of Ethiopia) was applauded by the people of Ravello when she appeared on a terrace above The Principessa di Piemonte Gardens. The beauty and tranquility of Palazzo Sasso has inspired many XX century personalities; the playwright Eduardo de Filippo wrote "Saturday, Sunday, Monday" on one of its terraces and General Eisenhower was a resident when he was planning the attack on Monte Cassino. Former guests remember Ingrid Bergman and Roberto Rossellini giggling over dinner in the restaurant.
This era was sadly interrupted in 1978, when the Viullmieur family gave up the Palazzo Sasso in favour of the Palazzo Confalone. The Palazzo was closed for ensuing 19 years. Fully restored, it re-opened in July 1997 to continue it's historic adventure.