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The origins of Murshidabad are not entirely clear. According to Ghulam Hussain, author of the Riyaz-us-Salatin, a merchant named Makhsus Khan first improved the present site of Murshidabad. Makhsus Khan had been mentioned in Akbar's biography, the Ain-i-Akbari, as a nobleman who served in Bengal and Bihar during the last decades of the sixteenth century. In Valentyn's map (1658-64) Moxudabath is shown on an island formed by the two branches of the Ganges.

In 1704, Murshid Quli Khan, the Diwan of Bengal under Aurangzeb transferred the capital from Dacca (now Dhaka in Bangladesh), and renamed the city Murshidabad. In 1716, he attained the title of Nawab (ruler) of the Subah (province) of Bengal, and Murshidabad became his capital. It continued to be the capital under a succession of Nawabs, and also under the British until 1790. It was constituted as a municipality in 1869, which remains to the present day.While it features extensively in history books, the large potential for heritage tourism has been somewhat neglected. Of historic interest are Nizamat Kila (the Fortress of the Nawabs), also known as the Hazaarduari Palace (Palace of a Thousand Doors), built by Duncan McLeod of the Bengal Engineers in 1837, in the Italianate style, the Moti Jhil (Pearl Lake) just to the south of the palace, the Muradbagh Palace and the Khushbagh Cemetery, where the remains of Ali Vardi Khan and Siraj Ud Daulah are interred.

The city today is a center for agriculture, handicrafts and sericulture. The famous Murshidabad Silk, much in demand for making saris and scarves, is produced in the like-named city in Uttar Pradesh.