Started in 1963, the award-winning Cambridge Street venue intends to mark its golden jubilee in three years' time with the creation and performance of a new piece of work.
Theatre bosses have applied for the council grant to help with the commissioning and development work, which needs to start as soon as possible.
Council officials have recommended the grant be approved, saying that the theatre had "an unrivalled reputation for producing contemporary theatre of the highest order".
The money would go towards the Traverse 50 project, a year-long celebration of the theatre including the specially commissioned piece of work, while the council will also look to host a civic reception and collaborate with the theatre on the 2012-2014 Cultural Olympiad and Commonwealth Games legacy.
Dominic Hill, artistic director at the Traverse, said details of the celebrations were still being ironed out but he would seek to appeal to non-theatregoers as well as regulars to stage shows.
"We have been talking about the anniversary for a while now and slowly trying to get our plans into place about the kind of activities we will be doing that year," said Mr Hill.
"The council have been really supportive, really keen and excited about this celebration and tying it in with the city."
The theatre chief added there was a desire to enhance the Traverse's position within the city.
"We have a huge international reputation but cannot forget the people closest to home," he said. "We want to use this event as an opportunity celebrate our unique position in Edinburgh.
"I imagine we will create a large community event which might take in different parts of the city and attract people who don't often come to us.
"This will be a city-wide celebration of the Traverse."
Mr Hill said a programme for festivities would be shored up by next year and they would not be too retrospective in the events they decide to run.
"We will decide what to do by next year but things change quickly so it would be foolish to put something in place too far ahead," he said.
"For me it's about celebrating the past 50 years but also looking forward to the next 50."We do not want to be too heritage-driven."
Audience figures for the theatre have rocketed in the last decade from 28,278 in 1998/99 to around 76,000 in 2009/10.
The proposal was among a range of future events set to receive provisional council backing today from the culture and leisure committee.
Officials recommended that 31,000 be put towards the Emirates Airline Edinburgh Rugby Sevens Festival, in May 2011, and set aside 80,000 in the events budget for next year's National Armed Forces Day, for which Edinburgh will be a host city.
Jim inch, director of corporate services, said in his report; "Edinburgh's major events and festivals continue to draw visitors to the city and produce social, cultural and artistic benefits for the city, as well as contributing positively to the local and national economy."