Outdoor drama was first performed in Battle Park in 1916 to celebrate the tercentenary of Shakespeare's death. W.C. Coker, faculty botanist who had developed the Arboretum nearby, chose the location. Several years later, when "Proff" Frederick Koch came to campus after having built a unique outdoor theatre at the University of North Dakota, the Battle Park location was developed into a permanent theatre.

The theatre was rebuilt with WPA funds about 1940 to a plan of Albert Q. Bell, who designed outdoor theatres at Manteo, Cherokee and Williamsburg, Virginia. Improvements in 1948 followed a plan by architect Paul Beidler.

Forest Theatre is dedicated to Koch, the founder of the Carolina Playmakers and the father American folk drama. The dedicatory marker at the theatre entrance reads: "For here now under the greenwood tree in a new-world forest of Arden, through love and admiration of thousands of students, is dedicated...this open air palace of light and sound, haunt of birds and breezes and human voices, home of natural beauty, poetry and drama, set upon the warm earth, in enduring stone, to commemorate an ardent genius who inspired and fostered the American folk play and, like another Johnny Appleseed, sowed the creative seeds of communal authorship throughout the American continent."

The theatre is frequently used for weddings, drama series, and other events.