According to a report from the Society of London Theatre (SOLT), theatre attendances exceeded 13 million for the first time.
Box office takings were also on the up and reached a total of £469.9 million.
The major musicals were among the most popular shows, with two-thirds of all theatre tickets sold allocated to Joseph and the Amazing Technicolor Dreamcoat and Grease.
A number of shows that opened late in 2006 also performed well, such as Spamalot, Wicked and The Sound of Music.
SOLT commercial manager Paul James said: "The story this year is of a vibrant sector. I think we are set fair for an excellent year."
There were a total of 17,455 theatre performances in London last year, which were enjoyed by average audiences of 781 people per show.