The theatre was the life's work of actor Bernard Miles with his wife, Josephine Wilson. Raising money from public subscriptions, he oversaw the creation of the new theatre on land formerly occupied by a warehouse. The site was near a plot that, during the Jacobean period, was the location of an abortive attempt to build a theatre (named Porter's Hall) for the amalgamation of the Children of the Queen's Revels and Lady Elizabeth's Men. This project, undertaken by Philip Rosseter with distant backing from Henslowe and Alleyn, was ended because of complaints from the neighborhood's residents.
It opened in 1959 with a hugely successful production of Lock Up Your Daughters and was the venue for many other very successful productions, such as Cowardy Cowardy Custard (often cited as responsible for the revival of interest in Sir Noël Coward's works) and including an annual staging of Treasure Island, with Miles reprising his role of Long John Silver, which he also played in a television version.
The Mermaid Theatre also ran the Molecule Club, educating children about science.
A property company, Gomba Holdings, owned by Ugandan Asian businessman Abdul Shamji and his family (which claimed to have interests in the Garrick Theatre and Wembley Stadium and were to become involved in protracted litigation by attempting, unsuccessfully, to sue the Bank of England over the failed bank BCCI, which regulators in the United States and the United Kingdom found to be involved in money laundering, bribery and support of terrorism), bought the theatre in the mid-1980s in the hope of developing the Puddle Dock site. Their revised plans did not include a theatre at all, contrary to their assurances given to the Corporation of London (who are the sites freeholders) at the time of the purchase. Bernard Miles was unceremoniously sacked from his honorary position as artistic advisor. Josephine Wilson died in 1990 and Bernard (by then Lord) Miles in 1991. From 1993-94 actor/producer Marc Sinden was artistic director and began to turn the fortunes of the theatre around and opened the Bernard Miles Studio. It was later revealed on BBC Radio 4's leading investigative programme Face The Facts that during this period Sinden had been covertly helping the City of London Police Fraud Squad, based at Snow Hill and the DTI (Department of Trade and Industry) in Gower Street secure enough hard evidence for them to commence detailed legal proceedings against the directors of Gomba Holdings. Actor Roy Marsden and Vanessa Ford then unsuccessfully took over the running of the theatre for a few months, prior to its eventual closure.
After a change of ownership the theatre was slated for demolition in 2002 as part of redevelopment plans. Already it had fallen into disuse, the buildings being used more often as a conference centre than a theatre. A preservation campaign by actors and other supporters attempted to reverse the decision. In April 2003 Ken Livingstone, Mayor of London, ordered the council to block the demolition. As of March 2005, the building was still in limbo, with new plans submitted for the redevelopment of the site. Nothing materialised and the building now operates primarily as a conference centre. The BBC Concert Orchestra use it for the occasional concert and the BBC regularly take it over for recordings of a popular weekly radio show, Friday Night is Music Night that has recently showcased the likes of violinst Nigel Kennedy and singer Josh Groban.
In September 2008, the Corporation of London City Planning Committee, against the advice of the Theatres Trust and noted actors, producers and artistic directors, granted a certificate that strips the 1950s former playhouse of its theatre status. The move is likely to save the developer £6 million worth of Section 106 funding which it had previously agreed to pay in lieu of the loss of the 600-seat Mermaid. The existing plans would see the Puddle Dock building converted into a conference centre and fitness suite, plus offices, a nightclub and retail and restaurant space. But campaigners — who in the past have included actors Steven Berkoff and Jeremy Irons — have criticised the plans, claiming the entire building is now likely to be demolished and predicting that the £6 million which had been due to go to theatre causes has now been lost. Former Mermaid artistic director Marc Sinden claimed the decision was likely to lead to the site’s total redevelopment. “Puddle Dock is worth a fortune,” he said. “What shocks me greatly is that the City has washed its hands of a beautiful theatre. Shame on them. Opened in 1959, the Mermaid was among the first playhouses to adopt an innovative layout involving a single tier of seats surrounding the stage on three sides. The sad thing is that so many artistic directors know the Mermaid and all say what a great building it is. It fits everything actors and directors want." John Levitt, former chairman of Save London’s Theatres Campaign, which led the high profile battle to save the venue, branded the decision “a tragedy” and “sheer meanness”. He said "The City of London had lost out on the golden opportunity to liven up the quiet city area. The developers have made it impossible for producers to use it as a theatre even for short runs, because of the way that they put in their own bookings." Mhora Samuel, director of the Theatres Trust, said she too “deeply regretted” the City of London’s decision. “The change of use means that any future development of the theatre site will not be bound by the previous Section 106 agreement,” she said. “Now we have lost the theatre use, the site can be redeveloped and theatres in the capital will not see a penny. This is a very sad day.”