Out-and-About Theatre was founded in 1977 to produce plays and musicals dealing in a positive way with the gay and lesbian experience. The impetus for its formation came from a summer 1976 production of The Faggot, by Al Carmines, which the theater's founder, Richard Rehse, directed at Minneapolis's Theatre in the Round (TRP). The production broke TRP's twenty-five-year box office record, indicating that there was a need and a place for gay and lesbian theater in the Twin Cities.

Since the Internal Revenue Service (IRS) routinely refused to grant tax-exempt status to gay organizations at that time, Out-and-About Theatre was originally formed in May 1977 as a sole proprietorship, privately owned by Richard Rehse. By 1980 when the IRS had changed its policy, the theater was incorporated as a non-profit, tax-exempt organization, with Richard Rehse continuing as artistic director and business manager accountable to a board of directors.

The theater produced over forty-five plays and musicals during its six-year lifetime, including numerous local and world premiers. Despite critical praise from local and regional press and some successful grant applications, by 1983 the theater had fallen into considerable debt. In February 1984, the board of directors voted to cease operation of the theater and file for relief under Title 11 (bankruptcy), Chapter 7 (liquidation) of the U.S. Code.