The club was founded on 20 August 1920, when they participated in a colonial competition in Osorno. It was founded by a group of Palestinian immigrants; the name of the club reflects the origin in Chile's Palestinian community. In 1952 the Federación de Fútbol de Chile set up the first professional leagues. Palestino was accepted into the Second Division, which they won to ascertain promotion to the Primera División. In 1955 the club won their first national championship under the coaching of Argentine captain Guillermo Coll, in that era the club became known by the nickname millonario because of their ability to attract top class footballers. In 1978 the club won their second league title, this time the team was led by Chilean captain Elías Figueroa. In this campaign they set a new record in the domestic tournament, for the number of games unbeaten and soon won the Copa Chile to claim the league and cup double. In 2004 the club became a registered company, but the change of status did not bring the expected improvement in results. In 2006 they finished in 18th place out of 20 teams, forcing them to face a play-off against Fernandez Vial to keep their place in the top flight. Ultimately the club would triumph thus preserving their spot within the Chilean first division. The club made a surprising run to the final of the Clausura 2008 tournament, where they lost to champions Colo-Colo. Following this success, the club intends to float on the Chilean and Palestinian stock exchanges. In January 2014, Palestino was fined the equivalent of $1,300 for using a new team jersey in the club's traditional colors, red, green and black, but with the number one in the squad numbers on the back shaped as the map of Palestine prior to the creation of Israel in 1948. Chilean Jewish groups complained about the political significance of this, with a formal complaint to their national Federation being made by Patrick Kiblisky, owner of first-division club Ñublense. The jerseys were said to have been first used in December 2013, although the club said they were used in the prior season. The federation banned the club from using the map on the back of the shirts and imposed a fine on the club on the grounds that the Federation is opposed to "any form of political, religious, sexual, ethnic, social or racial discrimination". On its Facebook page, the club stated: "For us, free Palestine will always be historical Palestine, nothing less."
