The castle was built in 1599 by Patrick Stewart, Earl of Orkney, to assert his authority over the archipelago. At the time of its construction, Scalloway was still the capital of Shetland.
Scalloway Castle was built simultaneously as Muness Castle by the same architect, Andrew Crawford, so the two castles have many similarities. In 1908, ownership of the castle was transferred to the state. Currently, Historic Scotland manages and owns the site.