Ms Merkel told reporters she would discuss the conflicts in Ukraine and Syria, as well as Iran and the Nord Stream 2 project. Yet while Putin suggested humanitarian aid would pave the way for some Syrian refugees to return home, German officials say that's unrealistic for now.
Putin arrived in the 18th-century palace shortly after attending the wedding of Austrian FM Karin Kneissl.
Merkel said this will be a working meeting and called not to expect much from the talks.
Putin told reporters that such a move had to make sense from a business perspective.
The Kremlin views divisions between the United States and Europe over trade and the Iranian nuclear deal as a chance for Russian Federation to mend relations with Germany by presenting itself as a more reliable partner in negotiations, according to other officials, who asked not be identified discussing internal matters.
Russian Federation has shut off gas supplies to Ukraine in the past, having knock-on effects in the European Union.
Putin stressed the importance of Merkel's support for Nord Stream 2 as evidence of her willingness to assert Europe's independence, said three people who attended a recent meeting between the president and senior diplomats. Ukraine fears the pipeline will allow Russian Federation to cut it off from the gas transit business.
Navjot Sidhu has arrived in Pakistan to attend Imran Khan’s oath-taking ceremony
But Khan will face a battle to push through his ambitious reforms and legislative agenda due to the thin majority in the National Assembly.
Russian Federation and Germany are partners in the Nord Stream 2 gas pipeline, a project criticised by US President Donald Trump due to Berlin's reliance on Moscow.
The global coverage of the visit would bring priceless publicity, he added.
Earlier this month, a Russian suggestion that the United States and Russia form a joint group to finance infrastructure renovation in Syria was met with an icy reception, according to a U.S. memo seen by Reuters.
In his comments, Peskov said Merkel and Putin had a "general exchange of opinions" over the situation in Ukraine and that the leaders expressed regret that implementation of the so-called Minsk accords had stalled.
Austrian Vice-Chancellor Heinz-Christian Strache, the leader of Kneissl's far-fright Freedom Party (FPO), praised the foreign minister as a "bridge builder".
"It was very good trip and nice", Putin said of the jaunt to southern Austria, near the border with Slovenia.