The country's longest-running professional theatre company Downstage Theatre, in Wellington, is closing.
The decision to close when the season of the current show finishes on Saturday was made at a board meeting on Monday night.
Chief executive Hilary Beaton has told donors the theatre cannot continue without adequate and stable funding.
Wellington City Council in 2011 bailed out Downstage, which opened in 1964. Subsequent attempts to pursue a new model based on partnerships with artistic companies have proved unsuccessful.
Downstage Theatre Trust chairperson Allen Freeth said Creative New Zealand warned it several months ago it needed to increase audience numbers. The warning followed Creative New Zealand's decision not to fund the theatre in 2014; it had been getting about $300,000 a year from the national arts development agency.
It had made progress towards meeting Creative New Zealand's demands but it had been difficult because the theatre company took risks, such as staging New Zealand stories. It also took commercial risks, Mr Freeth said.
"Unlike other theatres that might work on a profit share, we will take over the show and work in what is called a partnership model," he said.
"We will pay the actors and pay the crew so that they get certainty of income if the show doesn't do so well."
Wellington city councillor Ray Ahipene-Mercer, who is responsible for the arts, said the city's arts community would recover from the closure.
Wellington had a strong arts community, and the city remained the cultural capital, he said.
