Even in her apparently most naturalistic work, staged at the Royal Court throughout the 1970s and 80s, Caryl Churchill has had the ability to startle audiences. In Serious Money, she pushed the emotional temperature up to create the sense of frenzy of City dealing rooms. In Top Girls, she had a 1980s career woman sitting down to dinner with an array of women from history.

But as The Skriker, her latest play and the first to be produced at the National Theatre, opens—with a wordless roar and rocks hurled against bare white walls—we know we are into something different. The play integrates two worlds. On the one hand, this is the tale of two teenage girls running away to London, Lily, who is pregnant, and Josie, who is in a psychiatric hospital after killing her baby. On the other are the fairies and spirits of English folklore, played by dancers.

Foremost is the Skriker herself, a “shape-shifter and death portent,” who appears in the first scene as a kind of prehistoric giant spider. But, though a portent, the Skriker is never portentous. Played throughout by an incredibly versatile and controlled Kathryn Hunter (a “physically” trained actress who has worked with Théâtre de Complicité), the Skriker latches on to each of the girls in turn, in the form of an old woman, a homeless child, a prostitute, a baglady, a businessman and a Christmas-tree fairy. Each personification has its own character but is also unmistakably the Skriker—always needy, always seeking acceptance, wheedling, threatening and ultimately destructive.

To “skrike” is a Lancashire word meaning to grizzle or complain, and the Skriker's language does seem to provide a line back to old, forgotten words. When not in human form, she speaks in a brilliant stream of automatic writing, disjointed, full of puns and unconscious wordplay. Churchill has compared this to the language used by schizophrenics, constantly losing its intended direction and ending up somewhere else. It is a language full of jokes and incongruous contemporary references, and it is these the audience picks up on and responds to. But in its rhythm, insistent alliteration and vigour, it is also reminiscent of Old English poetry.

This ancient dimension is appropriate, for the fairies of The Skriker have come from a time when England was (according to the Skriker in a rare burst of nostalgia) “a country of snow and wolves where trees sang and birds talked and people knew we mattered.” But far from being kindly or ethereal, these figures (excavated from Katharine Briggs's work on English folktales) are evil and damaged. Often associated with dead children, they are the antithesis of J. M. Barrie's sentimental creations: the Kelpie, who is half-man, half-horse, drowns children; RawheadandBloodyBones (sic) drags them into marlpits; the Spriggan is blamed when they go missing.

In The Skriker, no conversation is simple, no word without its ghost. At its best, the overlaying of different strands of action on stage creates a flickering shadowy world of the unconscious, an expression of the violence and confusion in the minds of the characters. The fairies' presence creates possibilities for unspoken irony: for instance, as Lily tries to persuade Josie that her visit to the underworld was all a dream, RawheadandBloodyBones is splayed against the wall behind them like an outsize daddy-long-legs.

But the design of the production is confusing. Some of the non-speaking characters, such as Yallery Brown, a malevolent fairy on stilts, wear traditional fairytale garb. Others, like the Kelpie, are difficult to identify: dressed in a green lounge suit, the only horse-like thing about him is his long blond mane of hair.

The staging, too, uses the currently fashionable device of a set within a set—a white-walled room with receding perspective within a larger white box—for its own sake rather than to enhance the meaning of the play. It creates a false division between the actors and dancers, the human dialogue and the language of the fairies. The banquet scene is another missed opportunity. A cross between the Mad Hatter's tea party and the devil's banquet in Bulgakov's The Master and Margarita, this scene should be an apotheosis in which the glamour and rich food offered to Josie in the spirit world turns out to be mixed with “twigs and beetles and blood.” In fact, it is clumsily staged, with trays of plastic food carried on at sharp angles and the costumes misleadingly suggestive of Hollywood. This production is eerie, the presence of dancers teases and prods the mind, but the stage magic doesn't always work.

None of this should detract from the huge achievement of the play itself, particularly in using and subverting fairytale motifs and morals. Lily's kind word to a stranger is rewarded with gold coins coming out of her mouth, Josie's cruel words with toads, but the rewards are only temporary. In “the wide world hurled hurtling hurting hurt very badly” there is little to suggest that virtue will be rewarded or evil punished. Lily accepts the Skriker into her life through good impulses, but this saves neither her, nor the Skriker nor the world. Everyday reality is, as the Skriker puts it, “war zone ozone zany grey” or, according to Josie, merely “flat like a video.” Beneath that is the destruction and dancing and madness of a fairy world which, it is implied, we ignore or confront at our peril.