The city in the war-torn country's east is still reeling from the flooding that destroyed historic buildings, including Libya's oldest theatre where the festival was held in previous years.
Nizar al-Aned, artistic director of the Derna Festival, said organisers had "insisted that the festival take place, even if the theatre is still under construction" to rebuild it.
Now, back after a pause due to the September 2023 floods, the festival's sixth edition is being held this week under the slogan: "Derna is back, Derna is hope".
With five theatre troupes from Libya, and one each from neighbouring Egypt and Tunisia, the event has drawn artists, comedians and visitors from across the Arab world.
Tunisian comedian Abir Smiti said it was her first time at the event.
"To me, Derna is a discovery," she told AFP.
"When you just arrive, you can feel the pain, but at the same time there's joy. You can feel how everyone has hope."
Once home to about 120,000 inhabitants, the wall of water that swept through Derna last year killed nearly 4,000 people, left thousands missing and displaced more than 40,000 others, according to the United Nations.
It was the result of extreme rainfall from hurricane-strength Storm Daniel, which had caused two dams to burst inland from the city that lies some 1,300 kilometres (800 miles) east of the capital Tripoli.
Libya is still grappling with the aftermath of the 2011 NATO-backed uprising that toppled long-time dictator Moamer Kadhafi.
The chaos that ensued saw the rise of jihadist movements, with Derna coming under the control of Al-Qaeda and later the Islamic State group before they were chased out by 2018.
The North African country remains split between two rival administrations.
The divisions have complicated the emergency response and reconstruction efforts.
Derna is under the eastern administration backed by military strongman Khalifa Haftar, whose son Belgacem Haftar has been the figurehead for reconstruction in the city.
At the theatre festival, jury member Hanane Chouehidi told AFP that "despite the drama, the deaths and the destruction", she was confident Derna could be rebuilt.
"Derna deserves to be beautiful, just as its residents deserve to be happy," she said.
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