The Palace of Panah Ali Khan is the surviving residence of the founder of the Karabakh Khanate, built in the mid-18th century at the dramatic edge of a deep ravine in the southeastern part of the old city. Only two palace structures survive in Shusha — this is the more significant, sited directly above a cliff with views across the canyon and surrounding mountains.
The palace has been restored under the current reconstruction programme and functions as a historical museum. The architecture blends local Azerbaijani traditions with Persian influences: ornate carved plasterwork, decorative niches, and geometric tile patterns. The setting at the ravine's edge is remarkable — from the palace terrace you look out across a steep-sided gorge to the mountains beyond.