British cinemas enjoyed a strong year in 2007, taking £904m - up 8% on 2006, UK Film Council figures reveal.
Harry Potter and the Order of the Phoenix was the UK's biggest film
British films accounted for 28% of those takings, up from 19%.
But money spent on making films in the UK in 2007 - which included Harry Potter and the Half Blood Prince - fell to £723m from £855m in 2006.
Meanwhile, London's theatres attracted record audiences in 2007 with 1.25m more visits made than in 2006, the Society of London Theatre said.
The UK Film Council said a fall in the amount spent on British films in 2007 was far from disastrous because 2006 had been "an exceptional year".
It said the weak dollar and the US writers' strike had both played their part in the fall.
TOP 10 UK FILMS OF 2007
1. Harry Potter and the Order of the Phoenix (UK/US co-production) (£49.43m)
2. The Bourne Ultimatum (UK/US) (£23.72m)
3. The Golden Compass (UK/US) (£23.52m)
4. Mr Bean's Holiday (UK) (£22.11m)
5. Hot Fuzz (UK) (£20.99m)
6. Stardust (UK/US) (£14.85m)
7. Atonement (UK) (£11.63m)
8. Run, Fat Boy, Run (UK/US) (£11.01m)
9. St Trinian's (UK) (£7.71m)
10. Miss Potter (UK/US) (£6.91m)
Source: UK Film Council
Chief executive John Woodward said: "2007 was a strong year for film production in the UK and infinitely better than everyone was predicting this time last year.
"There is clear evidence in these statistics that yet again the UK has shown its strength by making both the bigger-budget commercial films alongside smaller equally powerful films."
Attendances in London's theatreland, meanwhile, rose to 13.63 million people in 2007 with ticket revenues reaching £469.73m.
Many of the extra visitors were attracted to the theatre after watching talent TV shows such as Any Dream Will Do and Grease Is The World, which hunted for lead stars for West End shows.
Society of London Theatre president Rosemary Squire said the rise was excellent news for the industry and the UK economy but said that staging "world-class theatre" was "a costly business".
"We're investing more and more in productions to meet public expectations," she added.
"However, for the moment, I think we can all celebrate an on-going success story."
Chief executive Richard Pulford said: "These figures are a wonderful start to our centenary year but we're under no illusions that in the current economic climate we're going to have to work very hard to maintain this level of success."