Yvonne Arnaud Theatre faces a funding cut it says could damage itself, its council and its community.
Guildford Borough Council is considering cutting funding to the theatre in phases until 2024, or charging rent for its Old Mill Studio site.
Director and Chief Executive Joanna Read said she appreciated the pressure on council finances but that the theatre is in "an equally critical place".
"We believe that cutting the grant to the Arnaud too quickly or too deeply will damage Guildford and, in the medium and long-term, the revenues of the council".
A recent economic impact study by the University of Surrey found the theatre contributes at least £1.5m to the local economy.
87% of theatre visitors would not have come into town otherwise, the study found.