The theatre, an initiative of Betty Burstall, was inspired by the "off-off-Broadway" theatre scene in New York City. Betty and her husband, film maker Tim Burstall, had just returned from a trip to New York and wanted to re-create the vibrancy and immediacy of the small theatres there. La Mama was modelled after a similarly named New York venue.
At a time when the production of Australian plays was almost non-existent (and financially risky), La Mama's non-profit organisation provided the venue for the performance of new experimental Australian theatre works.
The first play performed at La Mama was a work by a new Australian writer Jack Hibberd, entitled Three Old Friends (1967), whose most successful play Dimboola opened there in 1969. The production of Australian works at La Mama soon became a staple, and within the first two years of its life twenty-five new Australian plays had premiered there.
La Mama also nurtured new works by composers, poets, and filmmakers. The opening of the alternative theatre provided a home base for many important figures in theatre and film including Hibberd and Alex Buzo. It was also regularly used by underground performance troupe Tribe (who later collaborated with Spectrum). The theatre's house troupe, the La Mama Group, established by actor-director Graeme Blundell evolved into the Australian Performing Group.
La Mama's foundation marked the beginning of the emergence of a distinctly Australian style of theatre. La Mama also fostered a pool of talent that would flow on into many areas of the Australian arts -- playwrights, actors, directors, technicians, musicians, filmmakers, poets and comedians. The theatre regularly screened new works by film-makers such as Bryan Davies, Nigel Buesst, John Carnody, Bert Dehling and John Duigan, and other notable names associated with the theatre include David Williamson, Barry Dickins, Daniel Keene, John Romeril, Tess Lyssiotis, Helen Collins, Lloyd Jones, Judith Lucy and Richard Frankland.
It is located in a building which was built in 1883 for Anthony Reuben Ford, a local printer. The building has also served as a boot factory, electrical engineering workshop, and a silk underwear factory.