The library was founded by King Philip V in 1712 as the Palace Public Library (Biblioteca Pública de Palacio). The Royal Letters Patent that he granted, the predecessor of the current legal deposit requirement, made it mandatory for printers to submit a copy of every book printed in Spain to the library. In 1836, the library's status as Crown property was revoked and ownership was transferred to the Ministry of Governance (Ministerio de la Gobernación). At the same time, it was renamed the Biblioteca Nacional.

During the 19th century, confiscations, purchases and donations enabled the Biblioteca Nacional to acquire the majority of the antique and valuable books that it currently holds. In 1892 the building was used to host the Historical American Exposition.[3] On 16 March 1896, the Biblioteca Nacional opened to the public in the same building in which it is currently housed and included a vast Reading Room on the main floor designed to hold 320 readers. In 1931 the Reading Room was reorganised, providing it with a major collection of reference works, and the General Reading Room was created to cater for students, workers and general readers.

During the Spanish Civil War close to 500,000 volumes were collected by the Confiscation Committee (Junta de Incautación) and stored in the Biblioteca Nacional to safeguard works of art and books held until then in religious establishments, palaces and private houses. During the 20th century numerous modifications were made to the building to adapt its rooms and repositories to its constantly expanding collections, to the growing volume of material received following the modification to the Legal Deposit requirement in 1958, and to the numerous works purchased by the library. Among this building work, some of the most noteworthy changes were the alterations made in 1955 to triple the capacity of the library's repositories, and those started in 1986 and completed in 2000, which led to the creation of the new building in Alcalá de Henares and complete remodelling of the building on Paseo de Recoletos, Madrid.

In 1986, when Spain's main bibliographic institutions - the National Newspaper Library (Hemeroteca Nacional), the Spanish Bibliographic Institute (Instituto Bibliográfico Hispánico) and the Centre for Documentary and Bibliographic Treasures (Centro del Tesoro Documental y Bibliográfico) - were incorporated into the Biblioteca Nacional, the library was established as the State Repository of Spain's Cultural Memory (Centro Estatal Depositario de la Memoria Cultural Española), making all of Spain's bibliographic output on any media available to the Spanish Library System and national and international researchers and cultural and educational institutions. In 1990 it was made an Autonomous Entity attached to the Ministry of Culture (Ministerio de Cultura).

The Madrid premises are shared with the National Archaeological Museum.