The first, and arguably biggest, decision you have to make when designing a home theater is where to put it. The size, shape, and location of the room you decide on can have a big impact on what you are able to do with the space, so the decision should be considered carefully.
The size that home theaters need to be will vary from person to person. You must consider what you will be using your home theater for — will it be mainly for you and your family, or will you be hosting large gatherings and viewing parties? Think about how much seating you will require. Next, think about your equipment — what size sound system will you be using? How big will your screen be? If you will be using a projection screen, make sure the room will have a high ceiling, so that you can keep the projector away from the viewers. Projectors put off heat, and the noise they make could also be distracting to the viewers below, so a low ceiling could put it far too close to the top of their heads. A higher ceiling can also allow for tiered flooring, allowing those in the back of the room to still have a good view of the screen.
When looking at where to put your home theater, be conscious of how much noise a theater puts out. Even when insulated, loud music and movies may disturb family members and neighbors if the room is too close. The home theater should not share a wall with any bedrooms, particularly those of children. You should also try to limit how close it is to your neighbors, so that the noise will not bother them. Another thing to consider where noise is concerned is windows; sound travels through glass much easier than through insulated walls, so any windows will increase the amount of noise that escapes the room.
Home theaters should not be very wide, but their depth should determine how many your theater can seat. Seating should typically not extend too far beyond the edges of the screen, though if your room is wedge-shaped, this can be worked around a little at the back of the room while still allowing all seats a good view of the screen. The room should be as free from outside light as possible and have few doors and closets. A position over a basement is best, to allow for easier access to wiring.
Remodeling vs. Building
All of these things to keep in mind may be a little overwhelming, so first look at the big picture: do you already have a room you can use? A basement may work if the ceiling is not too low. If not, and you are looking at building an additional room onto your home, you can customize it for your theater, within reason. You must still consider your neighbors with this approach, but you have a little more freedom for designing the shape and size of the space you need.