The palace is a large stone ruins built long ago by the Others that once served as a university. There are four notable stone spires on top, each being a bell tower, and a garden with broken statues of some animals and Others. Inside, there are several chambers, including a few libraries and burial chamber.
It is difficult to come upon the palace, one must fly high and be very observant to notice the dip in the forest where there seems to be a crater. Waterfalls on the crater's edge cascade into the depths, sending up immense swirls of mist that make it extremely difficult to navigate inside. One may eventually find themselves seeing shapes in the mist, after which one will find the Palace of Mists.
The Band, while out trying to find ruins to scavenge for trade items, discover the Palace of Mists. Initially, Gylfie was the one who noticed the dip in the forest where the palace was, and went to tell the others before exploring. Inside, they found Bess tolling her father's bones to Glaumora.
The Band tells Coryn of the time they initially discovered the Palace of Mists.