The Stooges, while running the Cafe Casbah Bah (a Middle Eastern restaurant) and attempting to prepare a meal for customers Hassan Ben Sober (Vernon Dent) and Gin-A Rummy (George J. Lewis), discover a plan that their hungry customers are hatching. These two thieves are attempting to rob the tomb of Rootentooten, which contains a priceless diamond, but they discover that the Emir of Schmow (Johnny Kascier) has already gotten his hands on the diamond. The two plotters start wailing and are thrown out of the restaurant. The Stooges then attempt to retrieve the diamond themselves, as there is a $50,000 reward at stake.
The Stooges arrive at the Emir of Shmow's palace, all three dressed as Santa Claus. They then manage to acquire the diamond and make a quick exit, but not before dealing with a burly guard.
According to The Three Stooges Journal, a part was written for Curly — a lobby card photo shot for this film features an emaciated and mustachioed Curly as a chef. Ultimately, Larry assumed the role as the chef. Had Curly been able to appear, this would have been the second short-after Hold That Lion!-in which all four of the original Stooges appear in the same film.
- Malice in the Palace was reworked in 1956 as Rumpus in the Harem, using ample stock footage from the original.
- The scene featuring the Stooges riding into the stronghold of Schmow, each dressed as Santa Claus, was used in the 1938 Stooges short Wee Wee Monsieur.
- The map of Starvania, which the Stooges use to locate the Rootin Tootin Diamond, is the same one first used in the 1941 Stooges' Hitler spoof I'll Never Heil Again.
- The 2004 NBA brawl between the Indiana Pacers and the Detroit Pistons has come to be known as the Malice at the Palace, a play on the title of this short and a reference to the fact that the event happened at The Palace of Auburn Hills.
- In the scene where the cat and the dog are in the kitchen and making noises while Larry is chopping is reminiscent of an Abbott and Costello short.
- Malice in the Palace is one of four Stooge shorts that exist in the public domain (the others being Disorder in the Court, Brideless Groom, and Sing a Song of Six Pants). As such, these four shorts frequently appear on cheaply produced VHS and DVD compilations.
- Moe Howard and the Three Stooges; by Moe Howard , (Citadel Press, 1977).
- The Complete Three Stooges: The Official Filmography and Three Stooges Companion; by Jon Solomon , (Comedy III Productions, Inc., 2002).
- The Three Stooges Scrapbook; by Jeff Lenburg, Joan Howard Maurer, Greg Lenburg (Citadel Press, 1994).
- The Three Stooges: An Illustrated History, From Amalgamated Morons to American Icons; by Michael Fleming (Broadway Publishing, 2002).
- One Fine Stooge: A Frizzy Life in Pictures; by Steve Cox and Jim Terry , (Cumberland House Publishing, 2006).