The company traces its roots to the small Elizabethan replica theater inside the Folger Shakespeare Library on Capitol Hill. In 1970 the Folger converted the space - originally used for lectures and tours - into a working playhouse, and the Folger Theatre Group began performing. In 1986 Amherst College, which administers the Folger, withdrew its financial support for the resident company. A group of Washington civic leaders led by R. Robert Linowes refused to let the company die. They reincorporated it as the nonprofit Shakespeare Theatre at the Folger and hired Michael Kahn, the New York theater director who had run the Acting Company and run the McCarter Theatre at Princeton, as artistic director in 1986. Six years later Kahn moved the company downtown, into the restored Lansburgh's department store on Seventh Street NW - a flagship store originally built in 1882, now retrofitted as a 451-seat proscenium house. In 2007 the company opened a second, larger venue across the street: Sidney Harman Hall, a 761-seat performance space wrapped in a glass curtain-wall office tower.

The regional-theater pioneer Zelda Fichandler used to say that for a resident company, repertory is destiny - you become the theater your seasons make you. Under Kahn the Shakespeare Theatre Company built a repertory that ranged from Aeschylus's The Persians (the oldest surviving play in Western theater) to Tennessee Williams's Camino Real, from Sophocles to Harold Pinter. In 1999 The Economist named it one of the world's three great Shakespearean theaters. The New York Times said in 2007 that the company had 'a repertory of classics that no New York theater of similar size and scale can match.' The roster of guest artists Kahn drew to Washington reads like a who's who of stage acting: Patrick Stewart, Stacy Keach, Kelly McGillis, Pat Carroll (the first woman to play Falstaff at a major American theater), Hal Holbrook, Avery Brooks, Andre Braugher, Sian Phillips, and the British directors Michael Attenborough and Gale Edwards.

Othello has shaped the company's history more than any other play. In 1990 Kahn and the African-American director Harold Scott cast both Othello and Iago with black actors - Avery Brooks as the Moor, Andre Braugher as the ensign who destroys him, Franchelle Stewart Dorn as Emilia. Critics treated the production as one of the most powerful Othellos in a generation. Seven years later came the Stewart inversion. By doing the play with race reversed, the company found a way to ask the same questions the conventional production asks - about jealousy, racism, who counts as 'other' - without relying on conventions Stewart himself had come to find unusable. The Stewart Othello toured. It traveled to the Greek embassy, which invited the company to bring its Oedipus cycle to the 2003 Athens Festival. Michael Kahn's single-evening adaptation of Sophocles' three Theban plays had originally opened in Washington the week before the September 11 attacks. The Athens performance, headed by Avery Brooks with an all-black cast and set in central Africa, was staged in the semicircular Odeon of Herodes Atticus on the south slope of the Acropolis on the night of September 11, 2003 - two years to the day after the attacks.

In 1991 the company began an annual Free For All program, remounting a production from the previous season and offering it free to the public at the Carter Barron Amphitheatre in Rock Creek Park. For nearly twenty summers, Washingtonians could see Shakespeare under the trees by waiting in line for a ticket. In 2009 the company moved Free For All downtown, into Sidney Harman Hall. The summer outdoor tradition ended, but the free production continued; tickets are still distributed without charge. In February 2011 the company donated Harman Hall for two days of free performances of The Great Game: Afghanistan - a marathon cycle of twelve short plays produced by London's Tricycle Theatre about Western military intervention in Afghanistan - offered to soldiers, wounded veterans, and Department of Defense officials. The Will Award, an annual prize for contributions to classical theater in America, has gone to Hal Holbrook, Maggie Smith, Anthony Hopkins, Ralph Fiennes, Judi Dench, Jeremy Irons, Kevin Spacey, Ian McKellen, Annette Bening, John Hurt, Stacy Keach, Diana Rigg, Julie Taymor, Charles Dance, Laura Linney, Phylicia Rashad, and Eileen Atkins.

Michael Kahn retired in 2019 after thirty-three years as artistic director, having taken the company from the Folger's tiny replica stage to two purpose-built downtown houses with seasons that competed with anything in New York. His successor is Simon Godwin, who came from London - associate director at the Royal National Theatre, the Royal Court, and Bristol Old Vic. Godwin inherited a company that the Washington Post in 2017 had already begun describing as less daring than in its peak years, a judgment that often follows long artistic-director tenures. With George Washington University the company runs the STC Academy, a one-year MFA program in classical acting that has graduated over a hundred actors. The set construction shop is near Catholic University. The costume shop sits on Capitol Hill, a few blocks from the Folger replica where the whole company started. From a basement-level Elizabethan reproduction to a glass tower on F Street, the Shakespeare Theatre Company has become what Washington theater rarely permits itself to be: a regional company with national reach.