Traditionally backgrounds in theater are painted on Muslin. Check out the this site:
http://www.rosebrand.com/subcategory175/fabric-by-use-scenic-painting.aspxRosebrand is the old standby for most theater companies but you can find Muslin anywhere. It is just that they often have it in wider widths. They also sell scenic paint and the sizing that you use to treat the muslin before you paint it. Just like if you where going to paint on canvas with oil you would first stretch your muslin and then size it. Stretching muslin can be done on 4' X 8' sheets of press board. You can find it in Home Depot and it is normally used under flooring.
Found this interesting DIY article for making a dyed muslin background:
http://www.diyphotography.net/homestudio/chaep-diy-muslin-photography-background.
I also found a Google book called
Scenic Art for the Theater.
http://books.google.com/books?id=K9BMA92i41EC&printsec=frontcover&source=gbs_summary_r&cad=0#PPA11,M1 It is not the complete book but there is enough there to give you some basics.