In dreams, as the song goes, David Lynch walks and talks with you. He’s by now our premiere hypnotist—a Hitchcock off the narrative hinges—and Mulholland Drive is his Vertigo (if you can imagine a Vertigo that’s all vertigo). Once again the subject is play-acting, with Hollywood’s hanging gardens subbing in naturally for those Golden Gate psycho-vistas. And the anxiety comes not from uncertain freefall but a fear of landing hard on one’s fantasies: the death of pretending. With this new one, Lynch goes darker and deeper; it’s a big, terrifying epic about being swallowed whole by the fun factory, perhaps consentingly.

In retrospect, Lynch seems to have been working up to it: Blue Velvet presented imaginative curiosity as treacherous but, subversively, essential to rough sex and pure love alike. Even Dune, ever harder to dismiss these days, is suffused with dream prophecy made real; Lynch correctly identified the core of Frank Herbert’s waddy epic in a mantra shifted to his script’s heart: “The sleeper must awaken.”

Mulholland Drive has its own variation, spoken by a mysterious pardner known only as The Cowboy: “Hey, pretty girl—time to wake up.” But here, and it’s thrilling to behold, Lynch is finally beyond such distinctions of consciousness; he’s freed himself up like never before by placing his action at the Great Fakeness proper, where the process of becoming is, itself, a slip of the skin. From the first scene on, a violent limo wreck out of which emerges a dazed brunette (Laura Elena Harring) who starts down the ravine in heels toward L.A.’s twinkling sprawl, Lynch seems willing and able to go further into the void than even that granddaddy of Hollywood oblivion, Sunset Boulevard.

After those first nocturnal impressions—floating red tail-lights and smoke carried off by midnight breezes—the menace never lifts, even at warped high noon. Enter Betty (Naomi Watts), a quaking young hopeful fresh off the plane and ready for her three-picture deal. (Hers is a perkiness heightened to dementia: Watts manages to outbeam even her pink sweater.) She can’t believe her posh new digs vacated by a traveling aunt, or her showbizzy landlord Coco, or the nice cabbie at the airport who loaded her bags in the trunk. She doesn’t even seem to mind that nude stranger in her shower, our mystery B-girl from the car crash. Rita, she calls herself, after eyeing a poster for Gilda, and it soon becomes clear that she didn’t quite make it out of the accident whole. Rita’s amnesia works like catnip on Betty; Lynch lingers on her sympathetic reaction long enough for it to ripen into something slightly impure, à la “Look what I got!” Betty has come all the way from Deep River, Ontario for the movies and—wouldn’t you know it—they’ve found her.

But this being Lynch’s Hollywood, we know we’re not being primed for high-spirited sleuthing but something closer to nasty urban legend. Already, a perfectly healthy neurotic has elsewhere collapsed at the sight of a grinning monster lurking behind the local diner; these Nancy Drews in search of Rita’s identity are wandering unwittingly into a horror film. Gothic courtyards and shadowy hallways become close to unbearable, and a rotting corpse sends the women shrieking. It’s here, about halfway in, that Mulholland Drive would have ended, had it not been dumped by ABC as the television pilot it was originally intended to be. But I ask: Has there been a more promising first act since Laura Palmer cracked the spine of her diary in Twin Peaks?

Still, given the radical expansion that follows, you have to wonder if the gods weren’t smiling as network-safe elements—notably a confident detective on the case—are terrifyingly aborted and the movie teeters into apocalypse. There are plenty of sad stories of visionary genius dulled by trim-happy producers (Greed comes to mind); less known are the careful refinements that come out of liberation. Lynch, up to now, builds slowly, episodically, deepening Betty and Rita with conspiratorial glances and the subtle casualness of roommates. So the bloom of their attraction is the most tender surprise yet: “I’m in love with you,” Betty whispers in the blue glow of their embrace, and it’s the natural extension of her own hunger for self-revision. Rita’s mental haze, her full-figured aloofness, is just about the sexiest thing she can handle.

Lynch has long been a card-carrying romantic. He has technical lusciousness down to a science, but the swoon always makes more sense when linked to the wild at heart or even out-of-body yearnings of elephant men. And sure enough, something does shift here: Betty and Rita’s kiss is so pure, it sends the picture reeling. Suddenly, one of Rita’s few possessions—an ominous blue key found at the bottom of her purse—fits into in a bizarre box they take home from a nightclub and, with a twist, all bets are off: Betty is gone, or perhaps reborn as a strung-out failure named Diane. (Watts’ range in the double-role is breathtaking.) Rita is now a glamorous star named Camilla Rhodes, long over Betty or Diane or whoever she’s become. Even by lesbian standards, it feels like the shortest affair on record: Diane, forlorn, brews coffee in her dingy, mold-green kitchen and mourns a career that never materialized; Camilla basks in the attentions of some jerk director with a goatee.

Is it much later? Or earlier? The answer may lie somewhere in between; a large part of Lynch’s daring is in his confidence that you’ll want to figure this one out—and to his credit, I think he’s got us squirming on the hook. (I have my own theories, but don’t drop me a line unless you want to be wrecked.) As far as altered states go, the last 45 minutes can’t be beat. Camilla invites the frustrated Diane to a party; as she leads her through a dark glade, a “shortcut” to her mansion and success, you feel the power dynamic in full reversal, confidence and humiliation swapped. Lynch is pulling off nothing less than a Buñuelean tour de force by turning his surrealism into psychology; he knows our expectations and uses that command to secretly establish a yawning madness. With Mulholland Drive, the trance that comes so easily to him is finally charged with the doom of a classic.

Joshua Rothkopf can be reached at rothkopf@inthesetimes.com.