Richard Southern, in his studies of Medieval theatre in the round, states that in this period the acting area was called The Green.
This central space, often grass-covered, was used by the actors, while the surrounding space and circular banks were occupied by the spectators. From this source then The Green has been a traditional actors' term for the stage. The green room could thus be considered the transition room on the way to the green/stage. Technical staff at some West End theatres still refer to the stage as the green.
Some studies state that the green room was originally called the retaining room.
The ensemble of a production would wait there for their appearance onstage, listening to the performance of the principal actors and critiquing their acting. When made aware of this practice, the leads began to call the retaining room the green room, mocking the (green) envy of these actors.
According to one theory, long before modern makeup was invented the actors had to apply makeup before a show and allow it to set or cure before performing. Until the makeup was cured, it was green and people were advised to sit quietly in the green room until such time as the makeup was stable enough for performing. Whatever the origin of the term green room may be, uncured makeup is gone and the green room lives on!