The theatre's foyer will be doubled in size, access will be improved and a recording studio built.
More than half the money has been provided by the Big Lottery Fund, with the rest coming from charitable trusts.
Workington Playgoers Club said it would allow the venue to be used by a wider cross-section of the community.
The group has formed a partnership with Soundwave, a local music charity, which works with more than 3,000 children and young musicians every year.
Stella Kanu, director of Soundwave, said: "Having our own dedicated recording studio alongside specialist spaces for our workshops is priceless.
"It will allow us to enrich the lives of many more young people from Workington and beyond."
The future of Workington's Theatre Royal has been secured as a result of a funding package worth more than half a million pounds.