The authors agree that this surname derives mainly from palazzo, a term that points back both to medieval nicknames related to proximity to or belonging to a palace, and to place names distributed throughout Italy that contain the root palazz-.

E. De Felice notes that the base may be both a medieval nickname or occupational name linked to the manorial palace where one dwelt, lived or worked, and also the old Tuscan form palàgio. He further indicates that the variant Palagi is proper to Tuscany, and Palazzotto to Sicily.

F. Miranda specifies that the term palazzo comes from the Latin palatium, which originally designated the imperial residence and, in the medieval period, a building of large dimensions intended as the dwelling of sovereigns, noble families or the seat of government. He also notes that the surname could have originated in place names containing the root palazz-, such as Palazzo Canavese, Palazzo d'Arcevia, Palazzo del Pero or Palazzo Pedrengo.

According to Miranda, the surname is widely diffused in Italy, with a notable presence in southern regions such as Puglia, Sicily, Campania, Basilicata and Calabria, as well as in Lazio, and with cores also in Lombardy.