The Kota Kayang Museum stands on a plot of land which was granted by Raja Syed Alwi to his younger brother, Syed Salim bin Syed Muhammad al-Jafri, a senior minister to the King.

Towards the end of the 19th century, Syed Salim built his residence there (later sold to the State Government). Subsequently, the building became the official residence of the state British Advisors, and briefly taken over by the Japanese Military Administration as well as the Thai Military Government at the onset of World War 2.

After Independence, the building became the Perlis Chief Minister's official residence. It became popularly known as Rumah Tetamu (Guest House) after it was vacated by Chief Minister Dato' Jaafar Hassan in early 1980s. In 1991, the building was demolished to make way for the construction of the present State Museum, which is architecturally identical to the old building. The Kompleks Warisan Negeri (State Heritage Complex) is also located within the compounds of the State Museum.

Museum Kota Kayang is also the burial ground for two 16th century Sultans of Kedah, marked by two simple mausoleums with remnants of timbers and gravestone. Found at the same site was what appears to be a die or mould of Indian origin dating back to about 1662 to 1688.

The museum has three galleries. The General Gallery charts the chronology of the building of Fort Kayang and the daily paraphernalias of the Perlis aristocrats. The Archaeological Gallery displays the Kota Kayang research results as well as other parts of Perlis and, the Perlis Gallery which exhibits the royal family tree.