Since the Marmorpalais, which had been the traditional Potsdam residence of the Hohenzollern crown prince, had become inadequate for current tastes, Emperor Wilhelm II ordered the establishment of a fund for constructing a new palace at Potsdam for his oldest son, Crown Prince Wilhelm (William) and his wife, Duchess Cecilie of Mecklenburg-Schwerin on 19 December 1912. After their marriage in 1905, Wilhelm and Cecilie had previously lived at the Marmorpalais for most of the year and at the Berlin Kronprinzenpalais in winter. In 1911, the Crown Prince had been appointed commander of the Prussian 1. Leibhusaren-Regiment and moved to Danzig-Langfuhr.

On 13 April 1914 the Imperial Ministry and the Saalecker Werkstätten signed a building contract that envisaged a completion date of 1 October 1915 and a construction cost of 1,498,000 Reichsmark for the new palace. The architect was Paul Schultze-Naumburg, who visited the couple in Danzig to work out the design for the palace. It was based on English Tudor style buildings, arranged around several courtyards featuring half-timbered walls, bricks and 55 different decorative chimney stacks. With the start of World War I in August 1914, construction stopped but was resumed in 1915.

Crown Prince Wilhelm was so impressed with cottage and Tudor style homes like Bidston Court in Birkenhead (England) that Cecilienhof was inspired by it. Also, due to Duchess Cecilie of Mecklenburg-Schwerin's family ties, German Tudor-styled Gelbensande Manor near Rostock in Mecklenburg-Schwerin was an inspiration. The palace was designed in such a way as to be inhabitable for most of the year. Its low structure and multiple courts conceal the fact that it boasts a total of 176 rooms. Besides the large Ehrenhof (three-sided courtyard) in the centre, which was used only for the arrival and departure of the Crown Prince and his wife, there is a smaller garden court, the Prinzengarten, and three other courts around which the various wings of the building are arranged.

The "public" rooms were located in the centre part on the ground floor, around a central great hall, while above on the first floor were the "private" bedroom, dressing rooms and bathrooms. The living area of the great hall also features a massive wooden stairway made of oak. This was a gift from the city of Danzig. The ground floor rooms included an area for the Crown Prince with smoking room, library and breakfast room as well as an area for his wife with music salon, writing room and a room designed like a cabin on an ocean liner. The latter was used by Cecilie as a breakfast room. Like some of the other rooms it was designed by Paul Ludwig Troost, who also designed actual interiors of ocean liners for the Norddeutscher Lloyd shipping line.

The palace was finished in August 1917. It was named Cecilienhof after the Duchess and the couple moved in immediately. Cecilie gave birth at Cecilienhof to her youngest child, Princess Cecilie, who was born on 5 September 1917. However, when the revolution erupted in November 1918, for security reasons Cecilie and her six children moved for a while to the Neues Palais, where the wife of Emperor Wilhelm II, Empress Augusta Victoria, was living. After the Empress followed her husband into exile in the Netherlands, Cecilie remained in Potsdam and returned to Cecilienhof where she lived until 1920. As the property of the Hohenzollern family had been confiscated after the revolution, Cecilie then had to move her residence to an estate at Oels in Silesia, which was a private property. Only her sons Wilhelm (William) and Louis Ferdinand remained at Cecilienhof while they attended a public Realgymnasium (school) in Potsdam. Crown Prince Wilhelm had gone into exile in the Netherlands on 13 November 1918 and was interned on the island of Wieringen. He was allowed to return to Germany—as a private citizen—on 9 November 1923. In June 1926, a referendum on expropriating the former ruling Princes of Germany without compensation failed and as a consequence, the financial situation of the Hohenzollern family improved considerably. A settlement between the state and the family made Cecilienhof property of the state but granted a right of residence to Wilhelm and Cecilie. This was limited in duration to three generations.

Wilhelm subsequently broke the promise he had made to Gustav Stresemann, who allowed him to return to Germany, to stay out of politics. He supported the rise to power of Adolf Hitler, who visited Cecilienhof three times, in 1926, in 1933 (on the "Day of Potsdam") and in 1935. However, when Wilhelm realized that Hitler had no intention of restoring the monarchy, their relationship cooled. After the assassination attempt on 20 July 1944, Hitler had Wilhelm placed under supervision by the Gestapo and had Cecilienhof watched.

In January 1945, Wilhelm left Potsdam for Oberstdorf for a treatment of his gall and liver problems. Cecilie fled in early February 1945 as the Red Army drew closer to Berlin, without being able to salvage much in terms of her possessions. At the end of the war, Cecilienhof was seized by the Soviets.
The Potsdam Conference (officially the "Berlin Conference") took place from 17 July to 2 August 1945. It was the third and longest summit between the heads of government of the Soviet Union, the United Kingdom and the United States, the major forces in the anti-Hitler-coalition that had just won the war after VE day, 8 May 1945. The conference was mainly organized by the Soviets. Although the British prime minister Winston Churchill had refused to hold a summit "anywhere within the c…

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