Interactive theatre is a presentational or theatrical form or work that breaks the "fourth wall" that traditionally separates the performer from the audience both physically and verbally.

In traditional theatre, performance is limited to a designated stage area and the action of the play unfolds without audience members, who function as passive observers.^{[citation needed]} Conversely, in interactive theatre, the performance engages directly with audience members, making them active participants in the piece. Interactive theatre often goes hand in hand with immersive theatre, which brings the audience into the same playing space as the performers. They may be asked to hold props, supply performance suggestions (as in improvisational theatre), share the action's real-world (non-theatrical) setting (as in site-specific theatre and immersive theatre), or become characters in the performance. They may also be asked to participate in altering the course of the play by collectively voting to steer the plot in a new direction, as with Augusto Boal's forum theatre. In therapeutic and educational settings, they may even be invited to discuss pertinent issues with the performers.

Interactive theatre is not made for only entertainment, but is often produced to illustrate real-life political and moral debates. It allows the audience to become immersed as participants and to become the primary reason for the production. They may even become the show's main characters. Interactives productions are designed to create a sense of reality, where the location and setting sets the tone of the production. Space is an important factor: Interactive set designers "want rooms with character, with personality, so that we can work with [an audience member] as we would an actor."

Theatre companies and shows that regularly utilize audiences interactively include The Second City, pH, Supernatural Chicago, Dungeonmaster, Mystery on the Lake Productions, and Walkabout Theatre.

There have been several stage shows where audience members can actively alter the plot. Examples include:

Recent experiments in blending video games and theatre on stage include various works by Berlin theatre company Rimini Protokoll, such as their 2010 work, Best Before. As outlined in the book, PLAY: Dramaturgies of Participation (Playwrights Canada Press, 2024) by Jenn Stephenson and Mariah Horner, a particularly exploration of incorporating video games into theatre has emerged in Canada since the late 2010s, including works such as Foxconn Frequency No.3 by Hong Kong Exile, The Archive of Missing Things by Zuppa, Alone Together by Secret Theatre, asses.masses by Canadian artists Patrick Blenkarn and Milton Lim, and 2021 by Guilty by Association.

Combining interactive theatre and video games allows modern day playwrights and authors to create immersive plotlines. Interactive theatre and video games previously were two separate entities, but are now being combined. theatre provides the audience with lessons the viewer can interpret through plot, meanwhile video games provide the gamer with a storyline that they can alter. There are possible drawbacks to blurring lines between video games and interactive theatre: the author may be discredited by intertwining the two. Video games and interactive theatre can break the classic appearance of a story. Connecting the two visual mediums of entertainment deters the player from drawing conclusions that are explicitly shown through the plotline. Realism can be difficult to achieve when the lines are blurred regarding plot, scenery, and conversation due to the fact that structure is not followed and imagination can change reality. The audience may draw a different conclusion than if they became a player, because participation changes the outcome. Video games limit the player to a linear pre-written game script organized by the game developers. Although video games present some control over the development of the story, players are not the playwrights of the game. Video games are vital to the formation of emotional connections between a gamer and player.

Many medical students, as of 2012 are receiving training assistance from theatre and drama instructors in interactive theatre and role play to help prepare them for real world situations in which they will be delivering a medical diagnosis to patients who test positive for cancer, "teaching breaking bad news to medical students." Medical students attend interactive theatre classes where hired actors role play with the medical student. The medical student is put in different health care setting scenarios where she or he delivers a terminal diagnosis to the actor patient and the actor acts out a variety of different emotional responses. This enables the medical student to experience what she may encounter in the future when working with real patients. The purpose of this activity is to enable the future doctor to prepare herself for a variety of emotional outcomes where she will be able to deliver difficult news with the best bedside manner possible.