The theatre opened in 1867, designed by the Newcastle architecture practice of William Parnell as a producing house - an institution that would mount its own productions rather than only host touring companies. The first manager, George Stanley, ran locally produced drama, opera, musical spectacle, and pantomime from 1867 until 1881. The stage machinery he commanded was state-of-the-art for its decade: a complete grid of drums and shafts overhead for synchronised scene changes, mechanical bridges and traps below for sudden appearances and disappearances, a deep fly tower for hoisting backdrops, and one of the earliest electric lighting switchboards in Britain. The building is the only one of the eight surviving Grade I listed original theatres in Great Britain that dates from the Victorian era.

By the 1880s, the London star system made it harder for local producing companies to compete. Richard William Younge managed the theatre from 1881 to 1887, but when he died in June 1887 the lease passed to Augustus Henry Glossop Harris, who ran the Theatre Royal in Drury Lane and is sometimes called 'the Father of modern Pantomime.' Harris was knighted in 1891. Under his leadership, and the joint lease with Frederick Wyndham and James Brown Howard who also ran the Theatre Royal Newcastle, the theatre was substantially altered - the buildings that now house the Bistro Bar and the shops west of the theatre were added as a Grand Salon entrance. After 1895, Howard and Wyndham Ltd, founded by Michael Simons of Glasgow, took over both Newcastle theatres.

The list of who stood on this stage reads like a survey of the late Victorian theatrical world. William Gladstone spoke from the boards in 1891, at eighty-two years old, near the end of his political career. Sarah Bernhardt performed at the Tyne Theatre three times from 1895. The Carl Rosa Opera Company gave Newcastle its first performance of Puccini's La Bohème in 1897. The world premiere of Wolf-Ferrari's opera The Jewels of the Madonna happened on this stage. In the twentieth century, Plácido Domingo sang Tosca here in May 1983; Dame Joan Sutherland performed in 1989; Richard Todd starred in 1978; Steve Harley and Cockney Rebel played a memorable concert in August 2018. The building has outlived several rounds of changing fashion in entertainment.

The First World War broke the theatre's economics. In 1917, with audiences thinned by war and the movies eating the live-entertainment market, the building closed. By 1919, Sir Oswald Stoll had leased it and converted it into the Stoll Picture Theatre. The painted advertisement on the gable end - THE STOLL TYNESIDE'S TALKIE THEATRE - is still visible on Westgate Road. The Stoll was the first cinema in Newcastle to show talkies. It ran as a picture house for fifty-five years until closing in March 1974. Three years later, in July 1977, the building reopened as a theatre. A backstage fire in 1985 caused serious damage; the careful rebuilding that followed restored the Victorian stage machinery rather than replacing it with modern equivalents. The fact that the traps still work today is a result of that decision.

The theatre is now run by Tyne Theatre and Opera House Ltd, a subsidiary of the Tyne Theatre and Opera House Preservation Trust. Both are charities; all funds raised go back into preserving the building. The Trust has plans for a major refurbishment, with the auditorium and stage machinery to be restored to their Victorian roots, alongside the creation of an education and heritage centre that will let visitors see the working stage from below. The north part of the building falls within the boundary of the Hadrian's Wall World Heritage Site - because everything in Newcastle eventually traces back to the Romans. Westgate Road runs along the line of the old Roman road. The theatre that has been a music hall, an opera house, a cinema, and a theatre again sits on a street that has carried traffic for nearly two thousand years.