Designed in the Neo-classical style by architects Paul R. Allen and Ingalls & Hoffman, it was built by and named for actor-producer Henry Miller. His financial backers were Elizabeth Milbank Anderson, owner of the lot at 124 West 43rd, and Klaw & Erlanger.

The original theatre had 950 seats. It opened on April 1, 1918 with the play The Fountain of Youth. It was the first air-conditioned theater in Manhattan.

The theatre had its first hit show with Noel Coward's The Vortex in 1926. Following Miller's death that year, the theater was managed by his son, Gilbert, who bought the Klaw & Erlanger interest and paid 25% of the gross take of each play he produced to the Milbank Memorial Fund, Anderson's legatee.

 From the 1930s through the late 1960s, the theater enjoyed its golden years, with performances by Helen Hayes, Leslie Howard, Lillian Gish, Douglas Fairbanks, and Ruth Chatterton gracing its stage.

In 1968, it was sold to Seymour Durst. It showed feature films as the Park-Miller until it became a porn theater called Avon-at-the-Hudson. In 1978, it was converted into the discotheque Xenon. Twenty years later, it returned to legitimate use as the Kit Kat Club, borrowing its name from the club featured in the popular revival of Cabaret it was then housing. It was rechristened the Henry Miller when Urinetown opened in 2001.

The theater was closed in 2004, the interior demolished and subsequently rebuilt by the Durst Organization to make way for the 57-story Bank of America Tower.

Its neo-Georgian facade, landmarked by the city, remains, and includes a 1,055-seat theater designed by New York firm of Cook+Fox Architects within the new structure.[4] With bank facilities located above, architects were forced to design and build the new theater underground. This makes Henry Miller's Theatre one of only two subterranean houses on Broadway.

 In 2007, the Roundabout Theatre Company announced it would operate Henry Miller's Theatre as its third Broadway theater. The new theater opened in September 2009 with the Roundabout Theatre Company production of a revival of the musical Bye Bye Birdie.

In 2010, Dame Edna collaborated with cabaret pianist and singer Michael Feinstein for a two-person revue entitled "All About Me", based on the concept that both were rivals who were forced to work together for the show's sake. The show opened as the second production for the newly refurbished theater and was planned to run from March 18 through July 18, 2010 (with previews begininning on February 22).

However, lukewarm reviews and low ticket sales led to the limited engagement being cut short and closing on April 4, 2010, after 27 previews and 20 regular performances.

On March 22, 2010, on his eightieth birthday, it was announced that Henry Miller's Theatre would be renamed to honour American composer and lyricist Stephen Sondheim.

The first production to open at the new Stephen Sondheim Theatre will be The Pee-wee Herman Show, which will play a limited six-week engagement from October to December 2010, followed by a revival of Anything Goes starring Sutton Foster, which will open in April 2011.