On 15 June 1996 the IRA detonated a massive bomb in Manchester city centre, 50 metres from the exchange. Damage to the building was extensive, making performances impossible.
Repairs took over two years to complete and cost £32 million, a sum provided by the National Lottery. Whilst its home was being rebuilt the company performed in its mobile theatre, which was set up in an indoor market building in nearby Castlefield.
As well as repairing the theatre the rebuilding programme also added a second performance space, The Studio, as well as a bookshop, craft shop, restaurant, bars, and rooms for corporate hospitality. The theatre's workshops, costume department and rehearsal rooms were moved to a second site on Swan Street.
The refurbished theatre was re-opened on 30 November 1998 by Prince Edward. The opening production was Stanley Houghton's Hindle Wakes, the play which was being presented when the bomb went off.
In 1999 the Royal Exchange was awarded the title of Theatre of the Year in the Barclays Theatre Awards, in recognition of its successful refurbishment and ambitious re-opening season.
Over the years the Exchange has attracted a high calibre of actor to its stage from Albert Finney, Leo McKern and Tom Courtenay in the early days through successive generations including Vanessa Redgrave, Helen Mirren and Robert Lindsay to figures such as Janet McTeer and Amanda Donohoe. It has also had a reputation for spotting young actors before they became megastars. Kate Winslet and Hugh Grant both appeared at the Royal Exchange long before they made it on film.
The Exchange has also had a knack of spotting directorial and design talent before they went onto greater things. Adrian Noble, Nicholas Hytner, Phyllida Lloyd, Ian McDiarmid, Robert Delamare, Matthew Lloyd and Marianne Elliott all directed at the Exchange as associate or artistic directors at some stage and designers such as Mark Thomas, Rae Smith and Lez Brotherston have all done important work there.