A major part of the Chicago theatre scene, it is the city's oldest currently active nonprofit theater organization.

The theater was funded by Goodman's parents, Mr. and Mrs. William O. Goodman, who donated $250,000 to the Art Institute of Chicago to establish a professional repertory company and a school of drama at the School of the Art Institute of Chicago.

[2] The first theater was designed by architect Howard Van Doren Shaw (in the location now occupied by the museum's Modern Wing), although its design was severely hampered by location restrictions resulting in poor acoustics and lack of space for scenery and effects.

The opening ceremony on October 20, 1925, featured three of Kenneth Sawyer Goodman's plays: Back of the Yards, The Green Scarf, and The Game of Chess.

It has two fully modern auditoriums, named the Albert and the Owen, after two members of the Goodman family who continue to be major donors.