Yes, I remember it. They'd show movies and such in there.
When I was about 7, DL was closed some weekdays. On some closed days they'd do field trips where local schools would come to DL to see spscific things. The time I went was to learn about music. We got to hear several of the bands play, we got to see America Sings, AND in the old Fantasyland theater, we saw a show specifically produced to teach us about music. It included a film I've seen many times about tones being made from different length strings and such... Showed some clips from Fantasia, etc.
Pretty cool childhood memory of a field trip... Much better than field trips to the Botanical Gardens in Passidena, the L.A. Zoo, the San Bernadino County Museum in Redlands (though they had a cool WWII tank you could play in)...
I saw Winnie the Pooh films (Honey Tree and Blustery Day) in that theater (1970s) and it was great to see them. Kind of junky inside. Exposed ceiling and music notes on the walls. But hey, it was Disneyland.
"As usual he's taken over the coolest spot in the house"- Father re: Orville 1963
Remember it well and also as the MMC theater. That area of the park can get unbearably hot in late summer and we loved to go into the air conditioned theater to watch the cartoons. It was a pretty tacky interior come to think of it.