Oh, we do like to be beside the seaside

One of the most enjoyable seasons last year - and certainly the most surprising - took place at a theatre from which surprise and excitement had, the critics felt, long departed. There was even, one remarked in astonishment, a "buzz" about Chichester. It's hardly surprising that there would have been a noticeable change, though, with new leadership in charge - the directors Steven Pimlott (of Bombay Dreams) and Martin Duncan, together with the executive director, Ruth Mackenzie, formerly at the Nottingham Playhouse. This year's season, which opens today, will be an even greater departure from standard Chichester fare than last year's, which was seen by some as "too clever, too soon". But the trio's philosophy, they say, has been to return the theatre to its roots and give the public what they want.

Long known as the pensioners' delight, Chichester drew its audience from Sussex and Surrey, from patrons who wanted value for money - proper English well-made plays, thank you, and they weren't going to be fobbed off with actors who weren't stars. The typical Chichester summer would mean a Shakespeare or "modern classic" for respectability, a Pinero or Wilde for supposedly stylish entertainment, and, for nostalgia, the sort of play the theatregoers had seen in the West End when they were courting. A few years ago, Sam West caused a minor stir at the Minerva (Chichester's smaller house) with a lively production of Christopher Fry's 1949 drama The Lady's Not for Burning. But Fry's flowery, mannered work was not, for Chichester, a rediscovery - it had never left. Fry had, in fact, written the sonnet read at the laying of the foundation stone for the main theatre, in which listeners were urged to imagine the glories to come and "fill the present with the future". For the past few decades, Chichester could be described as filling the present with the past.

The spirit in which the theatre was founded, however, was visionary: Chichester was conceived as a grand international festival whose rivals would be the best theatres in London and the festivals in Vienna and Edinburgh. Leslie Evershed-Martin, the mayor and head of the local amateur-theatre group, was inspired by Tyrone Guthrie's Stratford, Ontario, festival to drum up support for a similar project in his home town, which also had a population of 20,000. Evershed-Martin not only managed to raise all the money for a theatre from private sources, he insisted that it be built in line with the latest ideas. His architects were instructed to design a thrust stage so that audience and actors would share the playing space, as was the case in Shakespeare's time.

When the 1,400-seat theatre opened in 1962, its manager was the greatest actor in the land, Laurence Olivier, and for his first season he programmed John Ford and Chekhov (his performance in Uncle Vanya is still remembered with awe). At the same time, Olivier was appointed to head the new National Theatre, from which Chichester gained even more cachet, as metropolitan audiences came to see his productions before they transferred to London.

Subsequent managers, however, could not duplicate Olivier's glamour, and the holidaymakers who used to double the population of nearby seaside towns flew over them instead, on their way to Spain. Since the theatre received no subsidy, it did not have much leeway for experiment, as Sam Mendes found when he was assistant director there, in charge of the Minerva. When he put on Caryl Churchill and Gorky, the old faithfuls were loud in their indignation. The council's insistence on keeping the theatre open all year, incurring losses in the winter, created further constraints. Matters reached their lowest level in 1997 when Duncan Weldon's tenure ended with a doubling of the £300,000 deficit he inherited and the theatre was threatened with liquidation.

At that point, the attention of the community became sharply focused: the theatre, a survey found, contributes £26m to the local economy, through jobs, hotel and restaurant bookings and an increase in potential shoppers. Under the next director, Andrew Welch, the loss-making winter season was axed (the theatre is now open from April to September), and the debts written off. The Arts Council provided more than £300,000 yearly support, and the new team extracted even more. It is now providing £1.2m a year, with West Sussex and Chichester District Councils each putting in another £300,000. Last year's festival ended up in the black - by only £3,000 but, says Mackenzie, she's not there to make a profit, only "to lose the right amount of money".

The new team, says Mackenzie, asked the townspeople what they wanted from a festival. "They told us they wanted it to be more festive." The team decided to do this by giving each season a theme. Last year's was Venice, with The Gondoliers and The Merchant of Venice in the main house, and a comedy, I Caught My Death in Venice, commissioned from the Marquez brothers. A new play, Holes in the Skin, about drug addiction and incest, did not get a warm welcome, but every other production was well received by critics and customers.

This year's theme is "Out of This World", also the title of a Cole Porter musical about naughty Greek gods that's receiving its UK première. Its opening this afternoon will be followed by A Midsummer Night's Dream. The theme of gods, devils and magic will also be represented with The Master and Margarita and the talking animals in the musical Just So - those surveyedasked for more family shows. There's Seven Doors, a "surreal cabaret" by Botho Strauss, and Cruel and Tender, which is a hit even before its opening. This topical rewrite of Sophocles' Women of Trachis, in which a warrior ravages the country he is sent to save, is a co-production with the Young Vic, where it won rave reviews. As last year, the plays will be cast from a repertory ensemble who will live in the town rather than stars contracted for a run of several weeks. This means, says Mackenzie, that programmes can be varied so as to give more choice to visitors down for a short break.

The team wanted to end the season with a bang, says Duncan: its last production will involve the entire community, so many of whom have rung its Dr Faustus hotline that the quota for amateur actors has long been filled. Duncan, along with Pimlott and three other directors will be in charge, or so he hopes, of a cast and audience who will start out at the Minerva, then make their way through the town and end up at the cathedral. "Dale Rooks is conceiving the Seven Deadly Sins at the moment, another director will be dealing with Sam West and Michael Feast as Faustus and Mephistopheles, and another one co-ordinating with the police." The show has been sold out for the past two months.

All this artistic ferment needs to be matched, of course, with hard work and creativity on the financial end, and Mackenzie has returned to first principles there too. "Too much attention," Evershed-Martin wrote, "is paid to existing audiences and not enough to the possibility of creating new ones." As well as putting on shows suitable for children, the management team are involved in youth theatre, teacher-training, commissioning plays for children and touring small companies to play the village halls of nearby communities. Some of this effort has already produced results, says Mackenzie, with a big increase in the number of child theatregoers - whose parents have also been attracted by a new range of low-priced tickets, from £4.50 for children and from £9 for adults.

Mackenzie is far from being unaware of the pressure of what Evershed-Martin called "a huge monster lying in the park, with hungry jaws waiting to be fed" but, just as the Roman town of Chichester was not built in a day, she does not expect to revolutionise the place in a season or two. The number of Friends has not noticeably increased but, she says, "We've halted the decline." She has also made the theatre's marketing more aggressive, switching from newspaper advertising to direct mail that targets people likely to be interested. "Advertising is chemical warfare," she says, rather alarmingly. "Direct mail is a single bullet." Her masterplan even takes real death into consideration, pointing out that "the age profile of many of the long-term supporters", which hampered previous directors' artistic choices, could be turned to the theatre's financial advantage by encouraging the idea of leaving the theatre a legacy. Given Mackenzie's determination, I'd feel a bit nervous if I saw that next season's programme included a stage version of Kind Hearts and Coronets.

'Out of This World' and 'A Midsummer Night's Dream' open today, Chichester Festival Theatre (01243 781312; www.cft.org.uk)