The Arts Theatre seats 350 in a two-tier basement auditorium. It opened on 20 April 1927 as a members only club for the performance of unlicensed plays, thus avoiding theatre censorship by the Lord Chamberlain's office. It was one of a small number of committed, independent theatre companies, including the Hampstead Everyman, the Gate Theatre Studio and the Q Theatre, which took risks by producing a diverse range of new and experimental plays, or plays that were thought to be commercially non-viable on the West-End stage. The theatrical producer Norman Marshall referred to these as ‘The Other Theatre’ in his 1947 book of the same name.
The theatre opened with Picnic a revue by Herbert Farjeon, produced by Harold Scott and music by Beverley Nichols. Its first important production was Young Woodley by John Van Druten, staged in 1928, which later transferred to the Savoy Theatre when the Lord Chamberlain's ban was lifted. In 1938 a four week revival of the Stokes brothers' Oscar Wilde, starring Francis L. Sullivan and produced by Ronald Adam, opened on 25 October. This coincided with a Broadway production of the play. In 1942 Alec Clunes and John Hanau took over running of the theatre, and for ten years produced a wide range of plays, winning a reputation as a 'pocket national theatre.'
In August 1955, Peter Hall, aged 24, directed the English-language premiere of Samuel Beckett's Waiting for Godot at the theatre. This was an important turning point in modern theatre for Britain. Subsequently, from 1956 to 1959, Hall ran the Arts Theatre.
According to Who's Who in the Theatre (14th and 15th editions), between April 1962 and January 1967 the Arts Theatre was known the New Arts Theatre. From 1967 to 1999, the Arts also became a home for The Unicorn children's theatre under the direction of its founder Caryl Jenner who took over the lease. Meanwhile adult performances continued in the evening, including Tom Stoppard's satirical double-bill, Dirty Linen and Newfoundland which, opening in June 1976, ran for four years at the Arts.
The theatre's lease was taken over by a consortium of UK and US producers in 2000, for a five-year period, and relaunched as a West End Theatre with the anniversary production of Julian Mitchell's play Another Country, directed by Stephen Henry. Notable productions during this time included The Vagina Monologues and Closer to Heaven the Jonathan Harvey/Pet Shop Boys Musical.
In 2011, the theatre was taken over by JJ Goodman, lead by Artistic Director Mig Kimpton. The Arts now operates as the West End's smallest commercial receiving house.