In the Fall semester of 1967, Dr. J. Edgar Webb, who was then commuting from Bloomington, Indiana while completing requirements for his doctorate at Indiana University, and Dr. David Burns, an assistant professor of speech and theatre at IUPUI, began planning the construction of a theatre in the basement of the Marott Building at 902 N. Meridian Street. The proposed space had previously functioned as a home economics laboratory, and earlier, as a swimming pool. At the time, the only theatre class taught was Dr. Webb's class in Introduction to Theatre and Acting I.

Dr. Dorothy Webb became a part-time faculty member in 1968 and the curriculum was expanded to include Stagecraft, Directing I, Acting II and History of the Theatre. That November, with Dr. J. Edgar Webb directing, A Streetcar Named Desire became the first production on the new stage.

In 1971, Lunch 'n Munch presentations were initiated. For the next four years during the month of December and free to the public, directing class students staged their work of one-act plays at noon in the Hidaway Cafeteria of the Blake Street Library. Between 1974 and 1983, dinner theatre was presented in the Union Building under the financial sponsorship of the Lecture and Convocations Committee.

In 1976, the Webbs began to offer touring productions of children's theatre which provided full-length, fully staged and costumed plays for school-age children throughout central Indiana. The touring plays also offered study guides to the plays and a chance for interaction with the actors in order to provide an educational opportunity for both the students and teachers which could then be used in the classroom.

In 1981, University Theatre was moved to the Mary Cable Building, located on the main campus of IUPUI. The move more than doubled the space available for productions.

In 1984, Dr. Dorothy Webb began the biennial IUPUI National Children's Theatre Playwriting Competition and Symposium which is ongoing and now named the Waldo M. and Grace C. Bonderman IUPUI National Youth Theatre Playwriting Competition. Her contributions made Dr. Webb a nationally recognized leader in the Children's Theatre Association of America. In 1992, she received the Sara Spencer Award from the American Alliance for Theatre and Education which honors artistic theatre practice of long duration and wide recognition. When given to an individual, the award recognizes meritorious achievement in the field of theatre for young audiences. It has been awarded only five times to individuals since its founding in 1978. In 1997, Dr. Webb was inducted into the College of Fellows of the American Theatre for her work in advancing theatre for young audiences.

In 1991, the School of Liberal Arts sustained heavy budget cuts and could no longer support University Theatre which lost two staff members, the business director and the technical director. However, with student activity money and residual ticket money from previous productions, the students continued theatrical productions at a rate of one show per semester instead of the usual two shows.

Citing fiscal restraints, university administration informed students who were majoring in theatre that they had two years to complete their degrees. Substantial cuts in the curriculum were made and the number of courses offered was cut by one third. The department moved from the Mary Cable Building to offices on the third floor of Cavanaugh Hall. Theatre courses were still offered, but the theatre major was eliminated from the Liberal Arts degree.

In 1993, University Theatre ceased operation. The final play was a reproduction of the first show produced by University Theatre in 1968, A Streetcar Named Desire. By the time of its closing, University Theatre had presented more than 98 productions.