"Somalia has historic literary traditions that date back more 700 years... and I feel that resuming such traditions will play a role in the peace process," President Sharif Sheik Ahmed said in a speech at the open-air Chinese-built theatre.
The fragile Western-backed government, which is waging an uphill battle against Islamist Shebab militants in the Horn of Africa nation, claimed it was a sign that things were slowly improving in the pockmarked seaside capital.
"We are here and watching performances for the first time in many years today because of the stability we have in Mogadishu and this is because of the sacrifice made by the national armed forces," Prime Minister Abduweli Mohamed Ali said at the opening ceremony.
But he added with a tinge of nostalgia: "I used to come at this theatre during the halcyon days when it looked better than today, I wish the good look of the theatre will be resumed."
The hardline Shebab have resorted to guerrilla tactics after the majority of fighters abandoned fixed bases in Mogadishu in August in what the Islamists claimed was a tactical retreat but the African Union peacekeeping mission said represented a military defeat.
The Shehab last month also lost control of their strategic base of Baidoa to Ethiopian troops and pro-government Somali forces, the second major loss in six months.
The Shebab and other militia groups have tried to exploit the power vacuum in Somalia, which has had no effective central authority since plunging into war 21 years ago when president Mohamed Siad Barre was toppled.
The highlight of the programme was a drama about good parenting.
"The reopening of the theatre after 20 years represents a major move towards the establishment of entertainment... people need life and fun not just violence forever," said Abdirsak Ali, who attended the ceremony.
"The future looks bright now, Somali literary traditions were about the fade completely but now that the theatre was reopened, people will at least have somewhere to go for entertainment," said Adan Mohamed, another theatre-goer.
Fadumo Moalim, a mother of three, however voiced concerns about safety, citing the Shebab's opposition to forms of entertainment it claims are proscribed in Islam.
The Shebab "target cinemas and football matches so that do you think they will spare a theatre where hundreds of people watch performances. I think this is not the suitable time to bring people in numbers at a place like the national theatre."
Ismail Yasin, who lives near the complex, echoed her comments.
"Security is the prime subject here. If the government can ensure security the idea to reopen the national theatre is good, otherwise the place could turn into a suicide bomber's target.
Kenya sent its troops into southern Somalia to fight them last October blaming the Shebab for the abductions of several foreigners.
Ethiopian forces entered Somalia a month later, entering the west of the country.