More than 400 young people a week attend Burnley Youth Theatre, many of them through the organisation's outreach community work.
Gareth Davies, general manager at the theatre, said the work to create a new building on its current site would help to reach even more young people.
He added: "This will also give us the scope to run many more sessions and offer more variety for young people."
The theatre hopes to open the facility, which includes new studio space, offices, dressing rooms and a cafe area, early next year.
It currently works out of temporary offices, but the new building will see all its operations under one roof.
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