The Theatre Royal in Plymouth has been awarded £5 million funding from Arts Council England for a regeneration project.
The Arts Council has committed the funds subject to the theatre raising an additional £2 million.
The theatre's chief executive, Adrian Vinken OBE, said: "We are delighted with today's announcement and most grateful to the Arts Council for its endorsement of our plans to modernise and improve the Theatre Royal.
"We all want to ensure the Theatre Royal remains Plymouth's cultural centre of excellence and secure its future for generations to come.
"This Regeneration Project will not only reinvigorate the theatre itself, but it will also contribute to the regeneration of Plymouth, reflecting the city's ambition and creativity, and its pride in its most significant cultural institution."
The theatre will receive the money if it can raise the additional funds from business sponsors and supporters.
To date, £750,000 has been raised towards this target.
Arts Council England's Director for the South West, Phil Gibby, said: "This project will provide a boost to the Theatre Royal, creating more space and making the building more useable, more attractive and more energy efficient.
This will benefit audiences, those who participate in educational activities at the theatre and contribute to Plymouth's culture and regeneration."