Sir Vicar (prime minister of Hyderabad and Berar) used the palace as his private residence until it changed owners and the palace was handed over to the 6th Nizam of Hyderabad around 1897-1898. Sir Vicar, besides being the prime minister of Hyderabad, was also the Amir of Paigah and was the maternal grandson of the Nizam III. He was married to Nizam VI older sister who also known as Lady Viqar ul Umra. The monogramme VO of Sir Viqar ul Oomra is seen on every part and furniture of the palace..
The Falaknuma Palace was built and furnished by Amir e Paigah Sir Viqar Ul Umra at a cost of forty Lakh rupees and it is said that even sir Vicar whose estate and income was more than a 15 gun salute state had to borrow money from Bank of Bengal to complete his dream project (Paigah was referred to as a State within a State due to its sheer size, wealth and income). In the spring of 1897 Mehboob Ali Pasha Nizam VI was invited to the palace, the Nizam liked the palace so much that he decided to stay back as this was his older sister Lady Vicar's residence. He extended his stay to a week then a fortnight and finally a month this prompted Sir Viqar to offer that if his sovereign liked the palace he would be honoured to give it to him as Nazar (offering). The Nizam liked the gesture but, being the grand man that he was, it is said as per Royal family sources that he paid Sir Vicar a substantial sum. However the members of the Paigah family maintain that about 20 lakhs was paid by H.H. The Nizam and the rest was accepted as Nazar or Offering. The Nizam used the palace as a royal guest house as it had a commanding view of the entire city.
The Falaknuma fell silent after the 1950s. The last guest important was president of India, Rajendra Prasad , in 1951. The palace was mostly kept closed since then and underwent a huge restoration after it was given on lease to the Taj Group of Hotels. The responsibility of the restoration to its original grandeur was led by H.H Princess Esra Jah, the first wife of H.E.H The VIlIth Nizam of Hyderabad.