Construction began in 1884, following a project by Adolfo Morales de los Ríos and Adolfo del Castillo Escribano, when Miguel Martínez de Pinillos was Mayor of Cádiz, on the site of the old Gran Teatro de Cádiz, built in wood in 1871 by the architect García del Álamo, which burnt down in 1881. In 1886, the City Council took over the management of the works, although the shortage of funds caused the works to be halted on several occasions, which prevented the work from being completed until 1905. The municipal architect in charge of the works was Juan Cabrera de la Torre, who largely modified the original project.

On 12 January 1910 it was inaugurated with the performance of a symphony by Barbieri, with Sebastián Martínez de Pinillos y Tourné as Mayor of Cádiz. Until 1926 it was called Gran Teatro, when it was renamed Gran Teatro Falla in honour of the city's favourite son Manuel de Falla. A year later, Carnival was performed for the first time in the theatre by the choir Los Pelotaris de Manuel López Cañamaque.

In 1984 the architects Rafael Otero and José Antonio Carvajal took charge of the restoration of the building, which was undertaken in 1986 at the end of the carnival season, with Mario Moreno "Cantinflas" as the town crier for the festivities, who was given a charity gala in solidarity with the earthquake in Mexico.

Built in neo-Mudejar style in red brick, it has three large horseshoe arch doors on its main façade, with alternating red and white voussoirs. It has a horseshoe-shaped floor plan, to which the floors are adapted, each of them in the 1920s. It has a capacity for 1214 spectators, divided into stalls, boxes, amphitheatre and paradise. The stage is 18 metres long by 25.5 m deep, and the ceiling shows an allegory of Paradise, the work of Felipe Abárzuza y Rodríguez de Arias.

Every year during the month of February, the Gran Teatro Falla hosts the Concurso de Agrupaciones del Carnaval de Cádiz, where the different carnival groups show all their art and genius in different modalities. This celebration was suspended between 1987 and the beginning of 1991 (only the semi-finals and final of the Concurso de Agrupaciones were held) in order to reform the theatre. During this period, the contest was moved to the Teatro Andalucía (now disappeared).

The rest of the year the theatre hosts an Autumn Season and a Spring Season with shows such as concerts, plays and to a lesser extent musicals and opera.

The Gran Teatro Falla is also one of the venues for the various festivals held in the city, especially the FIT, the Ibero-American Theatre Festival of Cádiz, and Alcances, a film festival dedicated especially to documentaries.