Nobles Construction will begin work today on the restoration of the Neptune Theatre, located in Hanover House on Hanover Street in Liverpool city centre.
Liverpool City Council settled a leasing dispute with landlord David Ramsey in August and reached an agreement on a £750,000 refurbishment to the interior of the building.
Work on the 97-year-old Grade II-listed site, which has lay derelict since 2005, will be completed in February next year, allowing the council to hand the theatre over to a full-time operator.
The theatre was due to open in time for the city's year as European Capital of Culture 2008 until a legal disagreement over the terms of the renewal of the council's lease stalled the job.
The council said that, as part of the agreement, independent surveyors will re-assess the length of the lease of Hanover House which Ramsey has from the city council for the next 38 years.
The restoration will see the 400-seat Edwardian venue fitted with new mahogany front doors, crystal chandeliers and modernisation features such as disabled toilets and wheelchair accessibility throughout the theatre, while the ticket office and bar will be removed for a future operator to fit out.
Liverpool City Council said the theatre is being renamed The Epstein Theatre, after the former manager of The Beatles.
Cllr Joe Anderson, leader of the city council, said: ''Brian Epstein was to many the 5th Beatle but he was also a brilliant entrepreneur who put many Liverpool acts on the road to success. He arguably did more than anyone to stamp the city so emphatically on the world map, an achievement which today generates millions of pounds for our tourism economy.
''I'm delighted Brian's family have accepted our request to rename this venue The Epstein Theatre as it gives Liverpool its first real opportunity to officially say thank you to one of our greatest sons for his unique contribution.
''For our Beatles industry this development means Liverpool has a new attraction and a new story to tell and for the city we will soon have a new theatre with a world famous name which will hopefully make it a commercially more attractive business to market and operate.''