The Folk Decorative Art Collection of Rhodes was established in 1966 by the Archaeological Service of the Dodecanese. Its nucleus consisted of the objects collected by Italian folklore specialist Marica Montessanto during the Italian occupation of the Dodecanese islands (1912-1943). They had originally been displayed by the Italians as part of the Ethnographic Museum housed at the Hospitaller Villaragut Mansion on Ippoton Street, which had been a Turkish upper class residence during the Ottoman period (1522-1912). After the annexation of the Dodecanese by Greece in 1948, objects derived from Greek contexts were selected for a separate display in the Arsenal building on Argyrokastrou Square in the years 1964-1966.

The Decorative Arts Collection, in its present form, also includes exhibits derived from the Folk Archive of the Dodecanese and several post-1948 acquisitions derived from private gifts, archaeological excavation and confiscations.