The Palace was a local arcade in Hawkins. It featured a variety of games, including Dragon's Lair, Dig Dug, Centipede, Galaga, Asteroids miss pac man tempest and Pac-Man, as well as several pinball games. Keith worked at the arcade.
On the night of October 29, 1984, Mike, Dustin, Will and Lucas went to the arcade and played a game of Dragon's Lair with Dustin at the controls. Even though Dustin earnestly tried to defeat the dragon by managing to get a sword to his character, he ultimately lost with his character getting killed by dragon fire. As Lucas boasted his high score on the game, Dustin countered that he still had top scores on Centipede and Dig Dug. However, the arcade's employee, Keith, overheard their conversation and told him that his top scores were topped by someone named MADMAX.
As they debated with him to reveal the player's name, Will unexpectedly noticed that it was snowing outside. However, when he turned to ask his friends, he was drawn to the Upside Down with the arcade seemingly abandoned and his friends missing. Will observed a red thunderstorm coming for him, before Mike, unbeknown to his visions, lapsed him out and they returned to playing.
Later on, with Keith's help at the arcade, Lucas deceived Max into thinking that the Dig Dug arcade cabinet was out of order and brought her to a separate room. It is here where he revealed the mysterious events that transpired the previous year, regarding Hawkins Lab and Eleven, in a way to apologize for why his friends were excluding her. However, she questioned the story’s legitimacy and even when realizing Lucas was serious with his story, she did not believe him and asked for proof, but Lucas could not provide any evidence to convince Max he is telling the truth. When Max's stepbrother arrived to pick her up, she advised Lucas not to follow her where Lucas watched her leave.
Behind the scenes
The Duffer Brothers revealed that their very first idea for the second season was to introduce a local arcade, stating that "We love board games but in truth have spent more time playing video games, so we wanted to weave them into the fabric of the show."
All the games on set were playable, so the cast and crew were able to play them between takes.
- The arcade's name is a nod to the 20 Grand Palace, the arcade from the 1983 film WarGames. 
- The arcade makes a small cameo in "The Battle of Starcourt."
- During filming for the fourth season, the arcade is seen in the background of shots being filmed at Family Video.
- "Stranger Things 2: Exclusive script pages reveal new location, character" Entertainment Weekly. September 14, 2017.
- "Stranger Things: Laundromat becomes 1980s-era arcade" Douglas County Sentinel. December 24, 2016.