The Penang Museum is housed in a colonial-era building built in two phases, phase one in 1896, and when funds were adequate, phase two in 1906. The building originally housed the Penang Free School, until it moved to its present premises along Jalan Masjid Negeri (Green Lane) in 1927. After the Penang Free School moved out, Hutchings School occupied the building, and occupied it until World War II, when Allied bombing destroyed the 1896 wing, (the one closest to the St. George's Anglican Church), which was never rebuilt after that. 
 
There was already a museum in Penang in 1940, housed within the original St Xavier's Institution. That museum was also destroyed when the St. Xavier's Institution was bombed by Allied forces. After the war, the effort to revive a museum in Penang got started. Initially, a museum of sorts was housed in a residence at Northam Road (Jalan Sultan Ahmad Shah).  
 
The Penang State Government proposed setting up a state museum in 1962. The idea was well accepted by the then prime minister, Tunku Abdul Rahman. He mooted the idea of using the Hutching School building, as it is now occupying the original Penang Free School, where Tunku had been a pupil. 
 
A working committee tasked with setting up the Penang Museum was set up in 1963, and eventually, the Penang Museum was opened to the public on 14 April 1965. Since then, the Penang Museum has undergone several renovation. It houses an outstanding collection of early paintings of Penang executed by Captain Robert Smith.  
 
The Penang Museum provides visitors a glimpse at the various ethnic groups that came to Penang in the late 18th Century, and showcases the cultural heritage of each community.