After a few recent missteps, The Village marks a return to form for wunderkind M. Night Shyamalan. Following the same format of slow-burning chills and self-effacing direction as his breakthrough film The Sixth Sense (1999), he has fashioned an extraordinarily affecting and intriguing meditation on modern America.

The film depicts a seemingly perfect village somewhere in the fields of 1897 Pennsylvania. Yet beneath this Norman Rockwell cosiness lurks an unnamed horror, for the close-knit community lives with the frightening knowledge that creatures reside in the surrounding woods. This evil force – "Those we don’t speak of" – is so foreboding that none dare venture beyond the clearly demarcated boundary of the village. Only when her beloved Lucius (Phoenix) requires medical aid does Ivy (Howard) journey into the woods to find help, thus slowly unravelling all manner of secrets.

Of course, this being a Shyamalan film, to say any more in a brief synopsis would risk revealing a denouement so devilishly logical that some more sceptical viewers will inevitably baulk at its audacity. The twist, when it comes, forces the viewer to do two things – to gasp audibly, desperately trying to make sense of it all in the claustrophobic confines of the cinema, and then to step out, blinking in the light, safe in the knowledge that the second time they see the film, the twists and trickery can be pondered upon from the opening credits.

The Village is further evidence of how Shyamalan has developed as a film-maker. His mature technique, combining a very precise visual style and carefully honed script, effortlessly balances psychological subtlety and a stomach-churning discomfort. There are no camera tricks here, nor recourse to directorial flourish – the audience is unsettled precisely because nothing seems to be happening. As with Unbreakable (2000) and Signs (2002), mood and tone are everything, but unlike these films, The Village works because everything is painstakingly set up – gestures, social hierarchies, communal living – to such an extent that psychological horror and costume drama can coexist.

Roger Deakins’s eerie cinematography completes the austere look of the film. Shot in autumnal browns and greens, the frame intermittently comes to life with the abstract splashes of red and yellow. Colour has always been an important structural element in Shyamalan’s films, and the red=evil/ yellow=protective dichotomy is expertly used in the chilling sequence in the woods. These scenes, like a German Expressionist film designed by Dario Argento, mix baroque operatic flair and ‘it’s behind you’ terror far better than any other modern horror films.

If the screenplay often has a clunky, unwieldy sound to it, the actors rise above any difficulties with consummate ease. The village elders Hurt and Brendan Gleeson evoke a sense of honour and stoic acceptance that becomes ever more understandable as the film progresses. Sigourney Weaver’s wonderful poise is used sparingly but effectively, and it is intriguing to see her in a film that owes much of its narrative drive to Alien (1979). Hollywood’s Young Turks fare less well – Phoenix’s headstrong introvert dominates the early exchanges; Brody has a showier role, but his grunting ‘village idiot’ fails to build on the Method promise of The Pianist (2002). Only Bryce Dallas Howard (daughter of director Ron) resonates after the credits roll. As the blind Ivy, stumbling though the woods, she displays grace, steadfastness and just the right level of charming disingenuousness that provides the narrative’s emotional core. Like Haley Joel Osment in The Sixth Sense, she invests her role with absolute conviction.

And so, to that ending, which, although less gut-wrenching than that of The Sixth Sense, actually makes perfect sense if framed against what has come before. Like The Sixth Sense, previous scenes reappear as voice-over clues and the opening of a mysterious box is the catalyst for the final revelations. But in hindsight, it displays a contorted logic all of its own. Shyamalan will always have his detractors, those who label him a one-trick pony whose love of glacial pacing, austere visuals and hoax endings are simply a means to an end; a deliberate, and some would say, heartless dismantling of traditional Hollywood conventions. Maybe so – but his films also display a coherence and methodical sense of plot sadly lacking in the majority of modern American cinema. His auteur status is steadily growing – not only does he write and direct but also handpicks actors, has final cut of all his films, and finds time for menacing cameos. And while all this sounds a little like Hitchcock, an influence many are eager to buy into, Shyamalan is quietly going about his business, combining massive commercial appeal, a dedicated fan base and critical brouhaha with every new project.

There is a chance that Shyamalan might get stuck in a rut, and the earnestness of his films is ripe for parody – but for now, The Village remains 2004’s most audacious release. Deeply imbued with a post 9/11 fear of the ‘outside’, and profoundly nostalgic for a pre-industrial apple-pie Americana, this is a film worth seeing several times – to enjoy a fascinating combination of acting talent, to endure a Blair Witch-style outing into the woods, to reappraise the film with prior knowledge of the ending, and ultimately to be swept away by a director fast establishing himself as the most distinctive voice in American cinema.