The Palace of Fine Arts was one of ten palaces at the heart of the Panama-Pacific Exhibition, which also included the exhibit palaces of Education, Liberal Arts, Manufactures, Varied Industries, Agriculture, Food Products, Transportation, Mines and Metallurgy and the Palace of Machinery. The Palace of Fine Arts was designed by Bernard Maybeck, who took his inspiration from Roman and Greek architecture in designing what was essentially a fictional ruin from another time.

While most of the exposition was demolished when the exposition ended, the Palace was so beloved that a Palace Preservation League, founded by Phoebe Apperson Hearst, was founded while the fair was still in progress.

For a time the Palace housed a continuous art exhibit, and during the Great Depression, W.P.A. artists were commissioned to replace the decayed Robert Reid murals on the ceiling of the rotunda. From 1934 to 1942 the exhibition hall was home to eighteen lighted tennis courts. During World War II it was requisitioned by the military for storage of trucks and jeeps. At the end of the war, when the United Nations was created in San Francisco, limousines used by the world's statesmen came from a motor pool there. From 1947 on the hall was put to various uses: as a city Park Department warehouse; as a telephone book distribution center; as a flag and tent storage depot; and even as temporary Fire Department headquarters.

While the Palace had been saved from demolition, its structure was not stable. Originally intended to only stand for the duration of the Exhibition, the colonnade and rotunda were not built of durable materials, and thus framed in wood and then covered with staff, a mixture of plaster and burlap-type fiber. As a result of the construction and vandalism, by the 1950s the simulated ruin was in fact a crumbling ruin.

In 1964, the original Palace was completely demolished, with only the steel structure of the exhibit hall left standing. The buildings were then reconstructed in permanent, light-weight, poured-in-place concrete, and steel I-beams were hoisted into place for the dome of the rotunda. All the decorations and sculpture were constructed anew. The only changes were the absence of the murals in the dome, two end pylons of the colonnade, and the original ornamentation of the exhibit hall.

In 1969, the former Exhibit Hall became home to the Exploratorium interactive museum, and, in 1970, also became the home of the 966-seat Palace of Fine Arts Theater. In 2003, the City of San Francisco along with the Maybeck Foundation created a public-private partnership to restore the Palace and by 2010 work was done to restore and seismically retrofit the dome, rotunda, colonnades and lagoon. In January 2013, the Exploratorium closed in preparation for its permanent move to the Embarcadero.

Today, Australian eucalyptus trees fringe the eastern shore of the lagoon. Many forms of wildlife have made their home there including swans, ducks (particularly migrating fowl), geese, turtles, frogs, and raccoons.

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