Peter Cheeseman: Pioneer of theatre-in-the-round whose reality-based approach to drama influenced his protégé Mike Leigh

"Make it stick," the Arts Council's drama director Jo Hodgkinson told Peter Cheeseman when he decided to back a fledgling theatre company in a seedy converted club in Stoke-on-Trent almost 50 years ago. Making it stick was Cheeseman's forte: he saw out years when his unheated theatre was so cold that even if an audience came you couldn't hear them clap because they were wearing gloves; and saw off an extraordinary attempt by his own patron, Stephen Joseph, to replace him.

He fought for 20 years to open the country's first purpose-built theatre-in-the-round, the New Vic in Newcastle-under-Lyme in 1986, and gave a home to the newly formed Lindsay String Quartet, leading directly to what is now the largest chamber music promoter outside London, the Sheffield-based Music in the Round. He also beefed up the National Council for Drama Training (NCDT), founding the pioneering Master of Fine Arts course in directing at Birkbeck, London, now led by his former associate director, Rob Swain.

But most famously he brought a new ideology to mainstream theatre-making. It emphasised local stories often told in the purest documentary form in which every word of the script had to have been previously spoken or written by the people whose stories were being told. Research was conducted by writers and actors – including, in the 1960s, the future director Mike Leigh who was infected by Cheeseman's determination to be "political and truthful", and among the actors to work with him were Bob Hoskins, Ben Kingsley, Robert Powell and Ken Campbell.

Peter Cheeseman was born in Portsmouth, but attended 10 schools as his family followed his civil servant father around the country. He "just did theatre all the time" at the University of Sheffield and, after gaining a Diploma in Education, took a short service commission in the RAF, in his words "trying to instil a love of Shakespeare in tough flight sergeants who wanted to make something of their lives after they were demobbed."

At Derby Playhouse from 1959 his jobs ranged from welcoming the audience front-of-house (his theatres thereafter were always among the friendliest in the land), to directing one in four productions. In 1961 he joined the great "prophet" of theatre-in-the-round Stephen Joseph, whose Studio Theatre Company – employing both Alan Ayckbourn and a Harold Pinter recently mauled by national theatre critics – was doing summer seasons in Scarborough and looking for a base in the Potteries. Cheeseman's role combined directing with administrative assistance and developing new theatre plans. He brought Studio Theatre to Stoke in 1962. "The rest of us just looked for digs," says Alan Ayckbourn, in the company as actor, writer and director. "Peter bought a house."

Stephen Joseph was dying of cancer and, Cheeseman believed, irrational when in 1966 he decided his protégé should be a manager, not a director. Sacked by Joseph's board and excluded from the theatre, Cheeseman amassed huge local support and his actors faithfully followed him to rehearsals in a local pub, with gratifying local publicity. Cheeseman effectively organised a coup and sacked the board. He argued that Joseph's belief that companies should be impermanent frittered away the effectiveness of the work. Joseph died in 1967.

Poles apart temperamentally, Cheeseman and Ayckbourn became the twin apostles of theatre-in-the-round and – at a distance – developed a strong mutual respect. Cheeseman produced the first Ayckbourn play to transfer to London, Mr Whatnot, and subsequently reflected that "Alan Ayckbourn is the second annual subsidy for British theatre after the Arts Council." Ayckbourn said recently that Cheeseman's sheer passion for theatre "inspired many, including me."

Cheeseman produced 392 main house productions at the Vic and then New Vic theatres, directing 147 himself. They included 11 musical documentaries using locally based folk musicians. At least one, The Fight for Shelton Bar, played its part in the temporarily successful campaign to save a local steelworks. The most popular was The Knotty, the story of the North Staffordshire Railway, revived last year at the instigation of a sponsor.

The late Joyce Holliday, whom Cheeseman had married in 1955, compiled documentaries and adapted Arnold Bennett's Potteries novels for the theatre. New work proliferated – there were 16 collaborations with Peter Terson alone – but there was also Shakespeare, Ibsen, Molière, Brecht and Greek tragedy. Informality ruled. Persuaded that theatregoers were entitled to a drink, he insisted on real ale. Allowing critics to phone their reviews through from theatre offices, the stocky, bearded figure in a woolly jumper would cheerfully eavesdrop on their dictation. Appointed a CBE on his retirement from the New Vic in 1998, he threw himself into work on the theatre archive and with the NCDT.

He is survived by his two daughters with Holliday, Kate and Betsy. In 1985 Cheeseman married the actor Romy Saunders, who continued to work with him in recent years, particularly in the family shows devised with the Lindsay String Quartet: specially commissioned stories integrated with the music that inspired them. Romy survives him with their daughter Chloe.

Peter Cheeseman sometimes worried privately about a later Arts Council drama director's reported view that he was "worthy but dull," but when the Vic was firing on all cylinders it was individual and exhilarating. His drive to connect theatre with its own community has had an impact that is indelible far beyond the Potteries.

Peter Barrie Cheeseman, theatre director and campaigner: born Portsmouth 27 January 1932; married 1955 Joyce Holliday (divorced 1985, died 2002; two daughters), 1985 Romy Saunders (one daughter); CBE 1998; died 27 April 2010.