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The American Place Theatre was founded in 1963 in New York City as a not-for-profit theater dedicated to aid in the advancement of learning in all aspects of the dramatic and related arts, including the development and advancement in writing, direction, and production of new plays by contemporary authors. The American Place Theatre was known for taking risks and producing experimental plays that demonstrated minority or immigrant experiences. Wynn Handman co-founded the American Place Theatre with actors Sidney Lanier and Michael Tolan. Handman became the artistic director, as well as the chief financial officer, positions he still holds at the time of this writing (2012), and has taught acting at his own studio since the 1950s. The American Place Theatre, originally located at Saint Clement's Church at 423 West 46th Street, officially opened with a production of The Old Glory, a trilogy of one-act plays by the poet Robert Lowell.

The American Place Theatre sought to keep the theater free from commercial pressures, performing only four to six original works a season to a subscription audience. In addition to these productions, the American Place Theatre staged rehearsed readings, called works-in-progress, which collected feedback on the play from audience members. Early playwrights who premiered their work at the American Place Theatre included Ed Bullins, Frank Chin, Phillip Hayes Dean, Jack Gelber, Robert Lowell, Joyce Carol Oates, Jonathan Reynolds, Ronald Ribman, Anne Sexton, Sam Shephard, and Steve Tesich. In 1971, the theater moved to a new location at 111 West 46th Street, part of a 1967 zoning resolution of the Theatre District that allowed developers height or plot rights in exchange for constructing a theater in their building. This allowed the American Place Theatre to move into a larger theater, as well as have a smaller, cafe-style performance space it called the SubPlot Cabaret.

In the 1970s, the American Place Theatre began broadening its scope in terms of audience and programming. In 1976, it began selling single performance tickets to non-subscribers in order to reach a wider audience. Two important programs were founded, the American Humorists' Series in 1974 and The Women's Project in 1978. The American Humorists' Series adapted the work of humor writers to the stage and included the work of George Ade, Robert Benchley, Roy Blount Jr., A. Whitney Brown, Jules Feiffer, Bruce Jay Friedman, Cynthia Heimel, Dorothy Parker, Roger Rosenblatt, Damon Runyon, Jean Shepherd, James Thurber, and Calvin Trillin. As part of this series, the American Place Theatre produced Laugh at Lunch, a series of noon performances that spotlighted the short films of comedic actors. The Women's Project was founded by American Place Theatre's associate director Julia Miles to develop the talents of new women playwrights and directors. In 1987, the Project left the theater and became its own organization.

As a not-for-profit theater, funding was a constant concern for the American Place Theatre, which relied on subscribers, individual ticket sales, benefits, and grants to financially support its programming. For a benefit in 1977, Handman assembled and screened rare footage of well-known actors from the past including Laurette Taylor in Peg o' My Heart, James O'Neill in The Count of Monte Cristo, and George Arliss, Charles Laughton, Noel Coward, Helen Morgan, and others into a film called That's Acting. The film continued to be shown periodically at the SupPlot Cabaret. Many productions were also funded with limited partnership agreements from individual investors.

In the 1990s, the American Place Theatre introduced more nontraditional theatrical works into its programming. In 1991, the theater produced The Radiant City, a multimedia musical theater piece about Robert Moses effect on New York City created by puppeteer Theodora Skipitares. In 1997 the American Place Theatre produced Coming Through, a play drawn from oral histories of immigrants who passed through Ellis Island that was adapted and directed by Handman. In 1994, the American Place Theatre began the Literature to Life program, a performance-based literacy program that presented professionally staged verbatim adaptations of significant American literary works. The first performance was an adaption of Toni Morrison's The Bluest Eye. By the late-1990s, the American Place Theatre shifted its focus solely to educational programming and still currently produces Literature to Life productions.

In 2002, the American Place Theatre moved into a theater on West 37th Street at 8th Avenue, and in 2009, relocated once again to the Film Center Building at 630 9th Avenue. In addition to the notable playwrights mentioned above, actors who have performed at the American Place Theatre include Ellen Barkin, Rosco Lee Brown, Michael Douglas, Faye Dunaway, Sandy Duncan, Morgan Freeman, Richard Gere, Cliff Gorman, Dustin Hoffman, Bill Irwin, Frank Langella, John Leguizamo, Aasif Mandvi, Dael Orlandersmith, Sam Waterson, and Sigourney Weaver.