In 1849 the The Tokugawa government commanded Matsumae Takahiro to build a castle to enhance the defenses of the area. It was completed in 1854. The location of Matsumae Castle on the Southwesternmost tip of Hokkaido was a vital point for controlling the passage between Hokkaido and Honshu. At the time, the Matsumae did not have the funds to build a new castle at Mt. Hakodate, the recommended site, so they decided to fortify the home of Matsumae Takahiro at Fukuyama instead.

During the Boshin War in 1868, the remnants of the Tokugawa Government that took control of Goryokaku in Hakodate also attacked and defeated Matsumae Castle.

In 1941, the donjon was designated a National Treasure, but it burned down in a fire that spread from the town hall in 1949. It was rebuilt in 1959. Matsumae Castle is considered to be the last of the traditional Japanese castles.