The Habima national theatre will take to the stage in Kiryat Arba, adjacent to the flashpoint city of Hebron, next month, local media reported today.
The company will perform Israeli Nobel literature laureate Shmuel Agnon's "A Simple Story," they said.
The theatre's spokeswoman could not be reached by AFP for comment.
The decision won a warm welcome from Culture Minister Miri Regev, a member of Prime Minister Benjamin Netanyahu's right-wing Likud party and a former chief military censor.
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Since taking office in May last year, Regev has been battling cultural works critical of the Jewish state and its policies.
Cultural figures in Israel accuse her of seeking to muzzle them with the threat of cutting subsidies to cultural institutions deemed not "loyal".
More than 400,000 Israelis live in settlements in the occupied West Bank, considered by the international community one of the largest obstacles to peace.
The US government has recently intensified its criticism of Israel's persistent expansion of the settlements, saying it is endangering the possibility of a two-state solution to the conflict.
"We appear everywhere where we are required," she said.
Veteran actor-director Oded Kotler said the theatre was being disingenuous when it likened performance before Jewish audiences in the occupied West Bank to shows within Israel's borders.
"When we say, 'the nation, Israel or national,' that doesn't include the occupied territories," he told public radio.
"By carrying out some kind of so-called pure cultural activity in these places, we are reinforcing the suffering of others, which has been continuing for years and years and is in fact preventing us from making peace."