Back in July 2005 it looked like curtains for the King's Head in Islington, North London. Dan Crawford, who in 1970 had created Britain's first pub-theatre in the grotty back room where the Victorians had once held cockfights, died of cancer - and, as his widow and principal aide says, the theatre seemed more or less to die with him.

But Stephanie Sinclaire is an American, as Crawford was, and not one to let her husband's 35-year legacy simply disappear. It was, she admits, a “terrifying time”: the theatre was £100,000 in debt, had lost its £70,000 grant from the London Arts Board and, as Tom Stoppard had put it, was “defying economic laws, almost the law of gravity”. How could it survive?

Well, it could, did and surely will, as this week should demonstrate. On Tuesday the opening takes place of what is not only the King's Head's most ambitious production since Crawford died but the first of a year-long season consisting entirely of new, home-grown work. Indeed, Warner Brown's Black and White Ball, a thriller that comes with songs by Cole Porter, will be followed by five other world premieres and, in David Gow's Cherry Docs, the first British showing of a play about racial tension that's been a major success in America.

After Crawford's death Sinclaire's first instinct was to hand over the theatre to a young artistic director - but who would want such a burden and who knew their way round the rickety old place as well as she did? She decided to find out how supportive theatre people were to the King's Head and discovered that, yes, they were, very. It's not too much to say that Dan Crawford was as much loved as anyone in the industry: a kindly, humble man whose Anglophile eccentricities included wearing awful tweed jackets and buzzing about in a Morris Minor, but also a producer who had launched or developed the careers of performers from Victoria Wood to Antony Sher, Hugh Grant to Joanna Lumley.

So Sinclaire decided “to muscle through on my own”. With the help of fundraising galas featuring Maureen Lipman and other King's Head alumni, the debt was paid off. And last summer she persuaded a high-powered friend to become her executive producer: Steven Levy, a New York impresario who had been educated in England and produced and/or managed shows as various as Martin McDonagh's Beauty Queen of Leenane, Dame Edna's Royal Tour and Our Town, with Paul Newman.

Both Sinclaire and Levy knew that the King's Head was exuding a sense of drift and that radical change was necessary if it was again to become the theatre that had transferred more productions than any other to the West End: from an adaptation of John Fowles's The Collector in 1972 through Steven Berkoff's Kvetch, Vivian Ellis's Mr Cinders and Stoppard's Artist Ascending a Staircase to a fine revival of Peter Nichols's Joe Egg in 2001.

So they've come up with the stage counterpart of a mutual fund. Instead of finding angels for individual productions, they've persuaded seven “partners” to invest a total of £210,000 in a 44-week season that will bring them profits if it makes more than its budgeted £450,000. Even if some of the seven scheduled productions flop and none transfers, box-office takings and sponsorship should ensure that the season at least breaks even.

“But we aren't here just to make money,” Levy says. “We'll be doing shows we believe are artistically worthwhile.” The aim is to continue Crawford's policy, to stage “interesting, entertaining, amusing, moving and relevant work”, in a theatre that itself has been upgraded. New plush, raked benches will increase audience numbers from 112 to 135. The notoriously smelly gents has been redesigned by the chap who is creating new lavatories for the Savoy Grill.

The lighting has been improved, too, and the tiny stage widened; but there's no change in the informality and immediacy that led Berkoff to call it a “home for the homeless, a sanctuary for every maverick in the theatre world”.

And though they've mended the roof that regularly leaked rain on to the performers, the administrators still work in poky, cluttered rooms warmed only by a Dickensian fire.

Right now they're preparing for productions that this year will include Lloyd Evans's Grand Slam, about a wild-card entrant at Wimbledon, a musical version of Barrie's Dear Brutus and, in Godiva, a Christmas premiere for a forgotten show by Guy Bolton and Vivian Ellis.

After that, who knows? Sinclaire is still thinking of handing over the theatre to a bright young director, but she wants first to ensure that it's securely back on its feet: “It's such a special place, with its history and the love that's gone into it and the ghosts in its walls. We're not going to let it turn into another Pizza Hut.”

Black and White Ball is at the King's Head, N1 (020-7226 1916), until May 4

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