Plans to upgrade Yeovil's Octagon Theatre have received a £10m boost from the government.
South Somerset District Council is pursuing a £23m upgrade of the arts venue in order to attract bigger and better productions.
The council has also been informed it will be able to claim back all the VAT associated with the project, reducing the cost to taxpayers.
Councillor Mike Best said it was "excellent news" for the project.
The government announced the funding in the budget on Wednesday as part of its wider commitment to "regional cultural infrastructure".
Plans for the theatre include the addition of a "fly tower" - a pulley and rigging system to allow stage crew and performers to fly across the space - a new circle of seats, two new cinema or studio spaces, plus improvements to accessibility in the building.
Seating capacity will also be increased from 622 to 900, placing it more on par with the likes of the Bristol Hippodrome and the Theatre Royal in Bath, with the potential to attract larger shows and more prominent touring performers.
The announcement was welcomed by councillors at a virtual meeting on Thursday, according to the Local Democracy Reporting Service.
Mr Best, portfolio holder for health and well-being, said: "This obviously helps greatly in the funding of the project going forward.
"It was 30 years ago that the last upgrade took place, so the building falls well behind current times and there would be significant expenditure required anyway."
The project was approved in principle in January, pending advice on whether the council could claim back VAT associated with the expansion, which has now been confirmed by HMRC.
The redevelopment plans will be placed before full council for final approval later in the year.