The 89-year-old composing legend - who was responsible for the lyrics for the Broadway adaptation of 'West Side Story' in 1957 - has been honoured by theatrical producer Sir Cameron Mackintosh - a friend and collaborator of more than four decades - who is turning the Queen's Theatre on Shaftesbury Avenue in London into the Sondheim Theatre to celebrate his 90th birthday next March.
Sondheim - who was awarded the 2015 Presidential Medal of Freedom by former US President Barack Obama - said: "I have loved British Theatre since I saw my first play here in 1958.
"I have treasured Cameron Mackintosh's support and friendship ever since he produced 'Side by Side' by Sondheim in 1976.
"Cameron is synonymous with British Theatre, so the confluence on this occasion is truly exhilarating.
" I am chuffed, as you say in British English, to a degree I wouldn't have imagined. Or as we say in American English, it's awesome."
Mackintosh added: "I have been lucky enough to have been a friend and colleague of Steve's since our first collaboration in 1976 on the musical revue 'Side by Side' by Sondheim at the Wyndham's Theatre.
"After 112 years Shaftesbury Avenue will have a theatre named after a living legend and house the world's longest running musical, the legendary Les Misérables as it enters its phenomenal 35th year.
"As an innovative voice in musical theatre, his influence has no equal.
"Sondheim's work will undoubtedly be performed as long as audiences want to see live theatre, so I feel honoured that he has agreed to have his name on one of my Shaftesbury Avenue theatres to salute his upcoming 90th birthday.
"Over the decades his work has become increasingly appreciated and performed by all, both as part of the popular theatre and classical repertoires and in spaces that range from a pie shop to the Royal Opera House.
"His love of theatre is unquenchable and throughout his career he has been an exceptional champion of so many young creatives as well as supporting numerous productions worldwide, especially here in London.
"When 'Les Misérables' re-opens in December with the new production, the re-built and restored theatre will be re-named the Sondheim Theatre - a perfect companion to the Gielgud Theatre next door, named after the great actor John Gielgud, and the Coward and Novello Theatres, named after the two celebrated British writers and composers.
"For the past 25 years I have tried to build a studio theatre in central London named after Sondheim, but it wasn't to be.
"I felt this major refurbishment of a building that has housed his brilliant work was the perfect moment to put his name 'on some marquee all twinkling lights - a spark to pierce the dark'.
"Stephen Sondheim has always been that spark to all of us.
"Even as an eight-year-old boy dreaming about becoming a producer I could never have dreamt a dream like this or be happier."
Sondheim - who has an Academy Award and eight Tony Awards to his name, plus eight Grammy Awards, a Pulitzer Prize, and Laurence Olivier Award - will become the only living artist to have a theatre named in his honour both in the West End and on Broadway.
His name will be erected after renovation works are carried out to repair wartime bomb damage to the auditorium and backstage area.
The Edwardian venue will reopen as the Sondheim Theatre with 'Les Misérables' on December 18.