Dunstanburgh was built illegally in 1313 on Lancaster's orders; the king did not give him a license to crenellate until 1316. The castle was a blatant symbol of Lancaster's power and disregard for the king's command.

Lancaster claimed that Dunstanburgh's construction would protect Northumberland from Scottish raids. However, since Dunstanburgh is located on a remote coastline, away from the regular line of march, it is unlikely that Lancaster intended Dunstanburgh to be used against the Scots. In addition, Dunstanburgh contains a number of military weaknesses.

Another possibility is that Dunstanburgh was constructed hastily as a refuge for Lancaster, who was then in political trouble. In this case, the remote location would be an advantage. Lancaster was indeed advised to flee there in 1322, before his capture and execution, but he did not take the advice.

It is far more likely that Dunstanburgh's location and design were chosen to create a powerful and mystical image upon the visitor. He was known for his extravagance, and even stocked exotic fish in Dunstanburgh's moat. In his greed-driven folly, Lancaster portrayed himself as King Arthur in his court at Dunstanburgh and throughout the lands he ruled. Some say that Dunstanburgh was Lancaster's attempt at making his own Tintagel.

Dunstanburgh's construction was carried out by the mason Master Elias.