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Theatre-on-the-Waterfront is housed in a former harbour structure on Cape Daves in Walsh Bay. Here, in 1829, the first wharf was built, which was given the called Pitman's Wharf. A century and a half later, in 1979, the Sydney Theatre Company was looking for premises for itself. It was then that Elizabeth Butcher, who runs the National Institute of Dramatic Arts, discovered abandoned shipyards in Walsh Bay and suggested that they be restored and make them the home of the Company. Her proposal was supported by the government.

When Vivian Fraser, who was appointed architect for the project in 1984, began work on the project, the main question was at which end of the pier to place the theatre building. Government architects, after conducting a special study, proposed to build it on the part of the pier that faces the road. But Fraser insisted that, for aesthetic reasons, the theatre building should be located on the seaward end of the pier. Her arguments were supported, and the the artistic director of the Sydney Theatre Company later said of it: "I liked the idea that every time you come here to see a play, it's like you're going on a journey".

Today, the Theatre-on-the-Sea consists of two 544-seat auditoriums. Along the 200 metres of wooden decking leading from the street to the theatre, there are posters of the Sydney Theatre Company that tell visitors its history. The theatre's huge windows overlook the famous Harbour Bridge and the waters of Sydney Harbour. From the east and west balconies of the local restaurant overlook Sydney's Luna Park and the skyline of the North Shore residential neighbourhood.