The Royal Shakespeare Theatre in Stratford-upon-Avon has been awarded a £20m grant towards its proposed multi-million pound regeneration.
The theatre was built in 1932
Regional development agency Advantage West Midlands has given the grant to the £100m project.
The Arts Council has already promised £50m towards remodelling the theatre to make it the world's best for performing Shakespeare's plays.
The final £30m will now be sought from individuals, businesses and trusts.
The work is expected to begin in April 2007 if all the funding is found in time.
The project involves building a 1,000-seat auditorium at the Grade II* listed building, which will give a modern take on courtyard theatres of Shakespeare's time.
There will also be bars, restaurants, shops and exhibition spaces involved in the proposed complex.
"I am delighted Advantage West Midlands has recognised the importance to the region of the RSC's plans to transform its theatre and estate," said Royal Shakespeare Company's executive director Vikki Heywood.
"The positive reaction to our emerging ideas gives the confidence that we are on the right track."