With the Lunatic Act passed in 1808 every county in the country was to provide an institute for the mentally ill, but by 1840 North Wales was still without such an institution because the poor rural communities could not afford to erect one. This meant that the most seriously ill pauper lunatics were sent to the English Asylums.

Building of the Hospital started in 1844. Plans were drawn up by Mr Fulljames of Gloucester under the guidance of his friend, Dr S. Hitch. The Hospital was constructed from limestone bricks produced by the Graig Quarry near Denbigh and was regarded as the finest structure of its type. The building work was completed four years later and opened on the 14th of November, 1848 and was able to house up to 200 patients. The clock tower was donated by a Mrs. Ablett in memory of her husband who donated the land for the Asylum.

The hospital was under ever increasing pressure to support its patients and relieve over-crowding, this led to a number of extensions occurring through out its life; the most major extension work happened in 1899. This allowed the Hospital to house 1500 patients at its peak and offer a wide range of treatments.

Denbigh Hospital was initially put up for sale by the North Wales Health Authority after it closed in 1995, but initial bids of around 1 million were refused.
The site was eventually sold for £155,000 in 1999.