Councillors voted unanimously in favour of the grant but have instructed Downstage to provide the Council by the end of the year with a 2012 business plan, to include a full financial, audience development, and marketing and fundraising strategy.
The theatre company has also been asked to provide the Council with a budget that demonstrates it can continue to viably operate next year.
Downstage theatre was established in 1964 and is the country's longest running professional theatre. Its home is the Hannah Playhouse, in Courtenay Place, which opened in 1973.
The theatre's major monetary source, Creative New Zealand, reduced its funding to Downstage in 2008 from $500,000 a year to $300,000. The Council provides $33,000 a year.
The discretionary funding approved tonight comes after the Council approved similar grants of $15,000 in 2008 and $25,000 in 2009.
This year has been extremely difficult for Downstage with lower than forecast audience numbers and falling box office and sponsorship revenue. As a result, the theatre company announced it would have to postpone and cancel shows from mid-October to December this year.
Downstage's audiences have declined over the last 15 years from about 50,000 in the mid 1990s to an average 33,000 over the last six years. So far this year the figure is 22,182, although under new management and business model introduced in 2008/09, audiences have been increasing at a rate of 2000 a year.
Wellington City Mayor Celia Wade-Brown says Downstage is a critical contributor to Wellington's cultural and economic well-being.
"It provides jobs for our cultural industry, opportunities for our performers and writers, and original entertainment for Wellingtonians and visitors," says the Mayor.
"Making a living in the arts must be possible in the arts capital of New Zealand. New Zealand-developed work contributes to our sense of identity as a nation.
"Failing to support Downstage now could mean this famous theatre is forced to close its doors and that price is too high."
The Council's Arts and Culture Portfolio Leader, Councillor Ray Ahipene-Mercer, says the $90,000 is a strategic investment to enable Downstage to maintain its position as one of the pillars that underpins the status of Wellington as the arts and cultural capital of New Zealand.
"We will be working closely with Downstage to both monitor and assist them with their business plan," says Cr Ahipene-Mercer.
"Downstage is a major contributor to Wellington's cultural scene. Its specialty is identifying talent and staging new works and in doing so this supports the development of new audiences.
"All of our theatres play a specific role in the sector and the loss of this professional theatre is not worth contemplating."