Sydney Theatre Company is a professional company founded in January 1979. The company was established as the NSW state theatre company. It inherited the mantle from the previous state company the Old Tote Theatre Company, which was disbanded after it lost its funding from the Australia Council and the state government. The initiative to set up a new state company was taken quickly. One of the aims was to establish a less administratively heavy company. Elizabeth Butcher and John Clark, the administrator and director respectively of the National Institute of Dramatic Art were appointed the initial administrator and artistic director. In the first year they administered a program of guest productions. This interim period helped to alleviate tensions within the Sydney theatre community related to the sudden demise of the Old Tote and provide a foundation for the new company.

At the end of that first year Richard Wherrett, who had been one of the founding directors of Nimrod, was appointed artistic director. His aim as stated in the policy statement released soon after he took up the position, was to provide 'first class entertainment for the people of Sydney - theatre that is grand, vulgar, intelligent, challenging and fun. That entertainment should reflect the society in which we live, thus providing a point of focus, a frame of reference, by which we come to understand our place in the world as individuals, as a community and as a nation.' The company's first year as a company was very successful. Two plays - Close of Play by Simon Gray, with Ruth Cracknell and Frank Thring, and No Names... No Pack Drill by Bob Herbert, with Noni Hazlehurst and Mel Gibson - transferred to the Theatre Royal to extend the seasons. The first few years the company focused on Australian work but from 1981 redirected its focus to the so called classics. By the early 1980s the company was running a deficit and the demands of funding for a state flagship company made it necessary to present a program that could be justified on a number of levels including educative levels. The company finally attained a permanent home when Elizabeth Butcher persuaded the NSW government to invest $1.8 million into a derelict wharf in Walsh Bay. Vivian Fraser converted the wharf creating an open stage theatre, an open space studio, rehearsal spaces, administrative offices and a restaurant overlooking the water. The Wharf Theatre opened officially in 1984. Richard Wherrett continued as artistic director until 1990. The position was then taken up by Wayne Harrison, who had previously worked with the company as a dramaturg. Harrison changed the tone of the company's work reducing design costs and increasing the number of productions. Harrison also introduced New Stages, an experimental venue at the Wharf under the direction of Michael Gow, and the Australian People's Theatre, a troupe of actors with English as a second language under the direction of the actor John Howard. Harrison retired in 1999 and Robyn Nevin took up the reins as artistic director.