THIS MIGHT BE THE STORY OF A FALLEN IDOL - A once-brilliant film director whose talents went astray and who lost his standing and esteem. Or it might be the story of a renewed hero who overcame loss and disdain to do the bravest work of his life. Given that the filmmaker we are talking about is David Lynch, perhaps it's fitting that we don't know how the story will turn out.

A few years ago, David Lynch was at the height of his achievements. He had become the first avant-garde film artist to receive two Academy Award nominations as Best Director, and he had brought some of his unsettling style and vision to the recalcitrant medium of network television with Twin Peaks - a grand-scale murder mystery that became a pop-culture phenomenon. That same year, 1990, Lynch won the coveted Palme d'Or at Cannes for Wild at Heart (a film most American critics hated), and he landed on the cover of Time magazine. "It was a pretty high time," he says. "But in a high time, there's plenty of danger."

It has been five years since Lynch's last movie, the much-maligned Twin Peaks: Fire Walk With Me. The director has been relatively quiet in the interim, making commercials (Alka-Seltzer Plus, Adidas) and trying his hand at a couple of other TV efforts, which almost nobody saw. Now, however, Lynch is about to release a new feature film, Lost Highway, and it is something truly startling - a work that gives structure to the interior reality of psychosis in much the same way that Lynch's earlier movies gave form to the intangible logic of dreams. For my tastes, Lost Highway - a film about betrayal, sex, murder, deception and tortured memory (a good list, wouldn't you say?) - may be the best movie David Lynch has ever made,though it may also prove to be a major test for whatever mainstream audience he still commands. In any event, there is nothing else like Lost Highway out there, and there is no easy way to prepare an audience for its experience.

LYNCH LIVES IN THE LOWER part of a hill canyon just outside Hollywood. He owns three houses in a row on the same street, and one of these houses figures prominently in Lost Highway - in fact, the house may be the film's most unnerving character. In Lynch's mind, the house had to be a certain way. He remodeled its exterior so the front featured eerie-looking slot windows, and he also added a tunnellike hallway to the place. The changes were worth the effort. The scene in Lost Highway where Fred Madison (played by Bill Pullman) walks down the house's hallway into pitch darkness is a pivotal moment: It's a portrayal of man walking into the darkness of his own destiny.

Much has been made over the years of Lynch's homey manner - the way he wears button-down shirts, speaks in a Jimmy Stewart-style twang and punctuates his conversations with phrases like "golly," "righto," "you betcha" and the like. This is all true, at least as far as I could tell. There's no question that there's a profound darkness somewhere inside David Lynch, if only in his own power to imagine, but it probably doesn't come to the surface easily.

On the afternoon I meet Lynch, he is dressed in a nice black shirt (buttoned to the neck) untucked over khaki slacks. While we talk, we sit in the carpentry studio that is located in Lynch's middle house. The room is full of big, gleaming machines and little items of woodwork. Lynch is 51 years old now. There are crinkles around his gentle eyes, and as he listens and speaks, his delicate fingers sometimes flutter unconsciously.

Lynch doesn't seem bitter about the failure of his last two movies. "When you love something," he says, "and feel you've done it correctly, then negative criticism doesn't hurt so bad. I love those movies. But in order to say you're successful, a film has to make quite a lot of money, and I haven't really done that. If I was successful in that way, I'd be ... I don't know,making pictures maybe more within the system."

Lynch pauses and flashes a smile. "I can see how it's nice to be entertained," he says. "But there are different kinds of films. I hope it would be possible to make a film that has some depth to it but that still has a strong story and great characters, and that people would really appreciate. That has happened in history - a film made by a director where there is no compromise, and when the film was released, it worked for huge numbers of people. And when that happens, it's thrilling to the soul."

IT IS TRUE THAT LYNCH'S MOVIES have never been major commercial successes. They've generally done better with critics than with audiences that is, until Wild at Heart and Fire Walk With Me, when they didn't do too well with either. At the same time, in the 25 years that he has been making films, David Lynch has had a considerable impact on moderncinema. He has influenced not only the way films look but also how filmmakers tell their stories and how their characters speak and behave. When you watch the films of Quentin Tarantino, Gus Van Sant, Tim Burton, the Coen brothers, Jim Jarmusch, Jane Campion and Todd Haynes, you are seeing talented directors working with a sense of permission and stylistic nerve that David Lynch helped make possible.

Lynch's first feature film, 1976's Eraserhead, was a spooky black-and-white independent venture that played like a sex nightmare captured in lucid form (well, semilucid). It told the story of Henry Spencer, a pillar-haired man who finds his already-fearful life made all the more fearful when he unwittingly fathers a demanding, helpless, half-human infant. Henry eventually kills the baby. Or maybe he just sets it free. Either way, the results are both awful and wondrous. The film's meanings were hardly plain (Lynch later admitted that the story partly reflected his own fears about the confinements of youthful marriage and fatherhood), but for many viewers, Eraserhead's fantastic imagery and industrial-Gothic atmosphere were meaning enough. Though some critics saw the influences of surrealism and expressionism in the movie, Lynch claims he was simply filming the vision that he saw in his own head. One thing is for certain: Eraserhead was a radical and indelible viewing experience, and it presented Lynch as one of the few fully original visionaries to emerge in postwar American cinema.

Eraserhead played largely to college audiences and midnight art-house crowds. With his next film, The Elephant Man (produced by Mel Brooks), Lynch got the chance to reach for a broader audience. The Elephant Man was Lynch's version of the life of John Merrick, the horribly deformed man in Victorian England who briefly managed to transcend the cruelty of his own body and of the world around him. Lynch's script for the film was linear and fairly orthodox, even old-fashioned - like a 1930s or '40s misunderstood-beast horror tale - but the movie's cinematography had much the same abstract, spectral look as Eraserhead. The effort won Lynch an Academy Award nomination for Best Director and also earned him the chance to direct Dino De Laurentiis' production of Frank Herbert's epic science-fiction novel, Dune. The latter proved a disaster, an embarrassing, indecipherable mess though, like nearly all of Lynch's work, it still held moments of stunning imagery. Lynch later forced the removal of his name from the film's credits. "With Dune," he says, "I felt like I had sort of sold myself out."

Dune's failure turned out to be a saving grace. Had it been a mass success, Lynch might have got snared in the Hollywood machinery that reduces interesting filmmakers to blockbuster formalists. Instead, with his next movie, Blue Velvet (1986), Lynch delivered a wonderfully twisted landmark of modern film. Blue Velvet is the story of Jeffrey Beaumont (Kyle MacLachlan), a young man who returns to the small city he was raised in and finds that behind the town's pacific facades, people are living lives of malice, corruption and humiliation. Jeffrey also finds terrifying desires within himself, including an appetite for sexually abusing a woman (Dorothy, played by Isabella Rossellini) who is so damaged that, without more damage, she can no longer feel longing or trust. Blue Velvet with its dark town and dark souls, and its strangely hopeful ending - earned Lynch his second Oscar nomination.

Four years later, Lynch took the same obsessions that defined Blue Velvet and transported them to prime-time network television. Twin Peaks, an ABC series created by Lynch with screenwriter and author Mark Frost, was the story of a small-town homecoming queen, Laura Palmer (played by Sheryl Lee), whose murder tears open a whole community's intricate webwork of secret sex, violence and horror. It was also the story of FBI agent Dale Cooper (MacLachlan), whose investigation of Laura Palmer's death leads him to some creepy discoveries about how evil can share the places and dreams where people live, and how it can get passed along from troubled heart to troubled heart.

For its first several weeks, Twin Peaks was a sensation. More important, it demonstrated that network television was capable of producing an audacious and cutting-edge work of culture. But Twin Peaks' ratings began to dip, and Lynch says the network pressed him and Frost to solve the central murder mystery.

"The murder of Laura Palmer," Lynch says, "was the center of the story, the thing around which all the show's other elements revolved - like a sun in a little solar system. It was not supposed to get solved. The idea was for it to recede a bit into the background, and the foreground would be that week's show. But the mystery of the death of Laura Palmer would stay alive. And it's true: As soon as that was over, it was basically the end. There were a couple of moments later when a wind of that mystery - a wind from that other world - would come blowing back in, but it just wasn't the same, and it couldn't be the same. I loved Twin Peaks, but after that, it kind of drifted for me."

After Twin Peaks, things misfired badly for Lynch. His prize-winning film at Cannes, Wild at Heart (based on the novel by Barry Gifford), seemed unfocused and loopy compared with his earlier, better works. There Lynch made his worst mistake: He returned to the terrain of his greatest success, Twin Peaks, and plumbed its dark central story. Twin Peaks: Fire Walk With Me aimed to reveal the events leading up to Laura Palmer's murder, but the TV series had already done so by outlining her descent into hell, then leaving its details to the viewer's imagination. Still, the movie had some powerful moments - a narcotized sex party at a roadhouse club, monstrous rages between Laura and her father, the bloody train-car murder ritual - and brilliant, terror-giving performances by Ray Wise (as Leland Palmer) and Sheryl Lee. Reviewers tore the film apart. This was not the Twin Peaks that fans remembered.

Lynch's stellar moment had faded - or, some critics would say, had been tarnished by the director himself. He had changed film, he had changed television, but most of that was forgotten. Popular culture turns over quickly, and David Lynch had fallen off it's wheel.

WILL "LOST HIGHWAY change that bad fortune? Hard to say. Certainly its unexpected plot turns and mystifying final movement may prove dismaying for viewers accustomed to the unambiguous narratives that define today's popular-film sensibility. "Every single element in a movie," says Lynch, "now had to be understood - and understood at the lowest common denominator. It's a real shame, because there are so many places that people could go it they weren't corralled so tightly with those kinds of restraints."

Lost Highway, co-written by Lynch and Barry Gifford, is the story of Fred Madison (Bill Pullman), a jazz saxophonist married to a dark-haired, sexy, cold woman named Renee (Patricia Arquette, in a tricky and award-worthy performance). Fred and Renee share a dark bedroom in a dark, almost windowless house (darkness is everywhere in the first part of this movie), but they don't share confidences, and they don't share time together. Fred suspects that Renee may have anotherlife, another lover. One morning, Fred and Renee begin to find cryptic videos left at their front door, showing the two of them asleep in their bed. It's a scary intrusion, but for Fred it also represents another kind of violation: He hates the presence of a video camera. "I like to remember things my own way," he tells a policeman, "not necessarily the way they happened."

One horrible night, Fred thinks he senses someone in the house. He wanders off into the house's blackness, and when he returns, Renee has been savagely murdered. Did Fred kill her? He isn't sure, but he ends up on death row for the crime. There, on another horrible night, he suffers a psychic implosion, and when he comes to, Fred no longer exists. He has been replaced by (or metamorphosed into) a younger man, Pete Dayton (Balthazar Getty), who possesses no memory of how he entered Fred's cell.

Since Fred Madison and Pete Dayton are seemingly not the same man, and since the younger man is guilty of nothing more than an old car-theft charge, Pete is set free. He returns to his job as an auto mechanic, where one of his prize customers is a gangster, Mr. Eddy (Robert Loggia), who has a taste for fine cars, ravishing women, guns and pornography. One afternoon, Mr. Eddy brings a Cadillac to the shop. He is accompanied by a lovely blond woman (also played by Arquette). That night, the blonde - who calls herself Alice - returns alone to see Pete, and the two begin a feverish affair. This, Mr. Eddy makes plain, is not to his liking. Alice grows frightened and wants to flee Los Angeles with Pete. First, though, she persuades him to help her rob a friend of Mr. Eddy's whom she sometimes fucks for money. The robbery goes wrong; Pete accidentally kills the man (horrifically but also hilariously). It is then that Pete finds out Alice is not the woman he thought she was and that everything in Lost Highway - time, fate, identity and love - turns inside out.

There's more that could be said about the film's plot twists and characters - especially about a gnomish figure called the Mystery Man (played with elegant menace by Robert Blake), who reckons crucially into Fred's and Pete's fates. But a narrative exposition can't truly illuminate what Lynch has accomplished with Lost Highway. Long after the movie's frantic closing moments, you will wonder how its mysteries fold in on one another. Who killed Renee? Are Renee and Alice the same woman? And the Mystery Man: Just who the fuck is he? Is he an incubus or a demon - or is he as close to an honest and redeeming character as can be found in this story? The keys are all there - Lost Highway is not simply an absurd conundrum - but the answers can be as hard to uncover as the hidden details of a dream.

"You can say that a lot of Lost Highway is internal," says Lynch. "It's Fred's story. It's not a dream: It's realistic, though according to Fred's logic. But I don't want to say too much. The reason is: I love mysteries. To fall into a mystery and its danger ... everything becomes so intense in those moments. When most mysteries are solved, I feel tremendously let down. So I want things to feel solved up to a point, but there's got to be a certain percentage left over to keep the dream going. It's like at the end of Chinatown: The guy says, 'Forget it, Jake, it's Chinatown.' You understand it, but you don't understand it, and it keeps that mystery alive. That's the most beautiful thing."

Barry Gifford, Lynch's co-writer on Lost Highway, is slightly more forthcoming. "Let's say you don't want to be yourself anymore," he says. "Something happens to you, and you just show up in Seattle, living under the name Joe Smith, with a whole different reality. It means that you're trying to escape something, and that's basically what Fred Madison does. He gets into a fugue state, which in this case means that he can't go anywhere - he's in a prison cell, so it's happening internally, within his own mind. But things don't work out any better in the fugue state than they do in real life. He can't control the woman any more than he could in real life. You might say this is an explanation for what happens. However, this is not a complete explanation for the film. Things happen in this film that are not - and should not be - easily explained."

Gifford is right: There's more to Lost Highway than its mysteries. There's also the movie's painterly photography, the tense and subtle performances by Bill Pullman and Patricia Arquette, and the bravura creepiness of Robert Blake's Mystery Man, plus a throbbing undercurrent of ambient sound by Nine Inch Nails' Trent Reznor during the video sequences. All these elements add up to making Lost Highway a film about the wonder of what film can be.

"For me," says Lynch, "a film exists somewhere before you do it. It's sitting in some abstract world, complete, and you're just listening to it talk to you, telling you the way it's supposed to be. But not until all the sound and music and editing has been done do you truly know what it is. Then it's finished. It feels right, the way it's supposed to be, or as right as it can. And when it's finished, you're back in a world where you don't control anything. You just do the best you can, then say farewell."

IN THE DAYS BETWEEN MY FIRST and second conversations with David Lynch, actor Jack Nance - whom Lynch had worked with for 25 years - was found dead in his South Pasadena, Calif., home. The day before, Nance had gotten into a fight with two men in a doughnut shop and suffered a severe head blow.

It was Nance who played Henry, Lynch's high-strung alter ego in Eraserhead. He also appeared in most of Lynch's subsequent films and played the art of Pete Martell the long-suffering lumber-mill foreman, in Twin Peak. In that series' opening moments, he makes the awful discovery of Laura Palmer's dead body; in its final hour, he is blown to kingdom come.

"He was one of my best friends," says Lynch. "Jack had a quality ... it's hard to put into words, but in my mind, Jack was a real Kafka character, Gregor Samsa [the man transformed into a cockroach in The Metamorphosis], which means to me: He understands trouble. He's trying to do the right thing, but he's also sensing the darkness and confusion of the world. That was pretty much Jack. He really had a pretty rough life, and it was rougher because he was a thinking person. Sometimes when you don't worry so much about stuff, you're actually kinder to yourself."

Nance's death bears close relation to Lynch's work. Clearly, this is a dangerous world - death and destruction are often closer than we would like to believe - and this is one of the major themes of Lynch's movies. But it is also Lynch's powerful treatment of this theme - especially the way he presents the caprices of violence - that has turned many critics against him. Some reviewers found Wild at Heart's impassioned scenes of brain bashing and decapitation all but unbearable, and Fire Walk With Me was excoriated for its depictions of father-daughter incest and murder (which, actually, were quite heart-rending). Other critics have expressed outrage at Lynch's portrayal of female characters as either victims or malicious seductresses (particularly Dorothy in Blue Velvet). Lost Highway likely won't be immune to these protests. In the preview screenings I saw, several viewers audibly gagged at the scene where Alice's slimy fuck-for-money customer is killed (I think it's the sound effect, which is astonishing). More troubling is the scene where Alice is forced to strip at gunpoint for Mr. Eddy. She is terrified at first, but her body starts to undulate in movements of pleasure, as if she's turned on by being forced into this act. Then she puts her head between Mr. Eddy's legs, smiling the perfect smile.

These are moments that will drive some viewers nuts - particularly those who think that depictions of explicit violence and chancy sex threaten the moral or cultural sanity of our times. Lynch has been hearing these arguments for years. "I'm not sure what these people are saying," he says. "Is it that if you depicted no graphic violence, the world would calm down and there would be less violence? Or is it that if you sense certain things about violence and then portray those things in a film, does that make the violence go to another level? Or is the violence in films a way to experience something without having to do it in real life?

"It's a tricky thing," he continues. "When you're an artist, you pick up on certain thin that are in the air. You just feel it. It's not like you're sitting down, thinking, 'What can I do to really mess things up?' You're getting ideas, and then the ideas feed into a story, and the story takes shape. And if you're honest about it and you're thinking about characters and what they do, you now see that your ideas are about trouble. You're feeling more depth, and you're describing something that is going on in some way.

"In film, life-and-death struggles make you sit up, lean forward a little bit. They amplify things happening, in smaller ways, in all of us. These things show up in relationships. They show up in struggles and bring them to a critical point.

"I don't know where to break this thing," he says. "Are we in the business of falling in love with stories? What if every movie had to have a positive message at the end? If we only put out pleasant films, nothing would really stop, except that people would stop going to the movies."

IN SOME OF HIS EARLIER WORK, David Lynch would deliver something magnificent and terrible only to creep back from its implications. At the end of Blue Velvet, after a night of mayhem and death, pretty birds come out to sing (though they hold worms in their beaks). In Twin Peak, after Leland Palmer confesses to killing his own child, we learn that he had actually been occupied by an otherworldly presence - something that FBI Agent Dale Cooper found more comforting than the idea that "a man would rape and murder his own daughter". In these moments, some semblance of order is restored after all the horror. "Once you're exposed to fearful things. . ." he once told ROLLING STONE, "you begin to worry that the peaceful, happy life could vanish or be threatened."

In Lost Highway, Lynch does not pull back. The plot delivers you to no easy place. Order is not restored, and not all the guilty are clearly punished. (After all, who isn't guilty in this story?) Instead, the movie's final moments are nothing but chaos and fear.

This may sound strange, but there is something heartening about witnessing one of America's most inventive artists allowing his art to grow darker, more difficult - especially at a point where he has everything to lose and at a time when there are loud voices in our culture who can stand no more admissions of darkness into the popular arts. Lynch has decided to put his vision up on the screen and protect neither himself nor us from it. Maybe he's saying that life's fractures aren't always easily comprehended or corrected. Or maybe he's saying that art shouldn't be reduced to something that, in the end, serves mainly to allay our anxieties or reinforce a fiction of order. Either way, it's a hell of a treat to see a brave artist working again at full strength. There's something about it that, truly, thrills the soul.