ACE rejected the troubled venue's initial application for a £726,000 grant last year but has green-lighted its revised application.
According to the Derby Telegraph, the successful application came after an open meeting that "invited all interested parties to suggest ways forward for the venue".
The grant means that Derby Theatre will be able to produce its own shows as well as hosting touring productions.
ACE's regional director Peter Knott said: "It's a good-news message for Derby. It feels like we are on an upward curve. The proposition put forward to us was compelling and that's what we always wanted. It's well thought through, it's exciting and it's a unique way of working."
The theatre is controlled by the University of Derby, which rescued the former Playhouse from administration in 2007 in partnership with Derby Live (see news, 10 Dec 2007).
The university has pledged to top up the ACE funding by up to £500,000 a year.
Gary Johnson, general manager of Derby Theatre said: “Derby Theatre is delighted that Arts Council East Midlands has decided to award us with strategic funding of £923,000 over three years. We are extremely grateful for their guidance over the past few months in helping us to realise the potential for the funding and how it can be best put to use – for the benefit of the venue, our audiences, our students and our stakeholders – and we very much look forward to working even more closely with them over the next three years”.