In April 1939, the federal government earmarked more than $120,000 of New Deal funds for the creation of a Greek-style theatre on the SDSU campus. With an additional $51,587 from the state, construction began on the Open Air Theatre. Plans for the facility called for the building of a stage, practice stage, orchestra pit and 4,280 seats.

Progress was slow; despite being located in a canyon, the site required some excavation, and problems occurred due to heavy rains, finances, and poor quality soil. One of the positive consequences of the project was the 40,000 cubic yards of soil excavated from the site was used to form an earthen bridge across the canyon separating the Dual Gym from the Quad area. The theatre finally was finished and dedicated in May 1941.

The Open Air Theatre originally served as a venue for outdoor events such as the Spring Sing, commencement, daytime speakers, and summer theatrical productions. In the early 1960s, the San Diego Symphony moved its summer concert series to the Open Air Theatre, as aircraft noise interfered with the symphony's concerts in Balboa Park. The program's success inspired Mr. and Mrs. Arthur Johnson, who were long-time friends of the college, to contribute funds toward the installation of comfortable seats for the front rows.

In 1978, the SDSU Associated Students leased and improved the Open Air Theatre, and it became a popular venue for major contemporary artists such as Jimmy Buffett, the Moody Blues, and Gordon Lightfoot.

Growing pains accompanied the theatre's success, and it soon became apparent that visiting performers needed more sophisticated quarters than the library's basement. Architect Donald R. Goldman was called in to design a hospitality center on the sloping side of the canyon flanked by the central library and the back of the theatre for performers and their crews. The new two-story bungalow opened in spring 1985 and featured three dressing rooms, showers and four toilet areas on the bottom level; the second floor includes a fireplace lounge, balcony, promoter’s office, bathroom, and a combination dining and food service area. Madonna was the first guest performer to stay at the new facility.

The Open Air Theatre's popularity as a concert venue dimmed with the opening of Cox Arena on the SDSU campus in 1997 and Coors Amphitheatre in nearby Chula Vista in 1998. Although major concerts have moved to these newer and larger facilities, bands and singers desiring a more intimate venue still perform at the Open Air Theatre. The theatre also hosts graduation ceremonies, Easter services, and rallies.