Definitely take this (inexpensive (3 Euro) tour (the only way to see inside this historic (and current) seat of government. The tour of this 16th century residence, school, Chapel and offices deftly captures the somewhat twisted history of Terceira and the Azores - which itself mirrors the larger machinations of the Spanish and Portuguese empires. It's a great grounding for the more human and down to earth parts of the history you'll learn during your visit to this wonderful city. Don't skip the gardens or Chapel! Sorry, but because the Palace is still used for the administration of the Azores, picture-taking is restricted to the modem exhibit room and the chapel.