Theatre Review of the year: Stallions take the laurels from Shakespeare

I didn't expect to begin a paean about the year's theatrical highlights by lavishing praise on a handful of puppets. However, the full-scale animal puppets in question were truly spectacular in the National Theatre's adaptation of Michael Morpurgo's First World War saga, War Horse. These magnificent creatures (designed by the company Handspring) looked like wonders of engineering made by Leonardo da Vinci, constructed from curved wood and gauze. Moreover, the sense that you were in the presence of living, breathing animals was uncanny. Right down to the rise and fall of the ribcage, the twitch of a leather ear and the slow muscular swish of a tail, this was puppetry of astonishing sophistication, taking the art form to a new level and all admirably done in the name of children's theatre.

The site-specific troupe, Punchdrunk, also pulled out all the stops for The Masque of the Red Death in Battersea. Inspired by Edgar Allan Poe, this adventurous young fringe company transformed the BAC's vast Victorian edifice basement, attics and all into a haunted mansion-going-on-Gothic madhouse, with fantastic detailing in the decor and visceral dancers in dark corners. Left to wander around this maze on your own, you could stumble into a candle-lit chamber lined with animal skulls or grope you way through a musty wardrobe, suddenly emerging into a grand parlour through its fireplace. Or you could get yourself locked in a lumber room with a ghoulish vamp who clasps you in her ice-cold fingers. A thrilling theatrical nightmare.

By way of light relief, it's been a wonderful year for comic performances, not least Simon Russell Beale and Zoë Wanamaker as Benedick and Beatrice, pretending they're not smitten with each other in Much Ado About Nothing. Paul Ritter was priceless as the sardonic bureaucrat, Lush, in Pinter's The Hothouse, also at the NT. Acting the innocent dimwit in the West End's improbably hilarious air-hostess farce, Boeing Boeing, Mark Rylance was pure delight coupled with Michelle Gomez as an insanely zany dominatrix. Nicholas le Prevost was a joy as well, maintaining the manner of a squadron commander while being ridiculously scatty in Alan Ayckbourn's How the Other Half Loves (which toured for the Peter Hall Company).

Brilliant dramas focusing on black experience notably flourished in 2007, especially at the vibrant Young Vic. These included Debbie Tucker Green's highly poetic Generations, Ikrisma Kherol (A Christmas Carol poignantly relocated to South Africa) and The Brothers Size. The last was a riveting chamber piece about two African-American brothers written by a talented new US playwright, Tarell Alvin McCraney. He combines chatty naturalism and Brechtian games quite brilliantly. The production's incisively superb director, ATC's Bijan Sheibani, will go far as well.

The Almeida brought us Theodore Ward's forgotten gem, Big White Fog, a family tragedy about racial discrimination, clashing ideals and political protest in Chicago during the Great Depression. The ensemble acting, with Danny Sapani among others, was excellent. The Almeida likewise contributed to a wealth of fine productions of Russian plays, rediscovering Nikolai Erdman's banned anti-Stalinist satire Dying For it (aka The Suicide), a wild felo de se farce. Along with that we had Gorky's Philistines at the National; Declan Donnellan's delicately traumatised Three Sisters for Cheek by Jowl (with an all-Russian cast), and the Maly Drama Theatre bringing their bewitching Platonov, by Chekhov, to the Barbican staged around and in a pool of glimmering green water.

It was a somewhat thin year for new British plays, but Dennis Kelly's pretend-docudrama about infanticide, Taking Care of Baby, was a powerfully disturbing exception (playing at Hampstead Theatre), and so was newcomer Polly Stenham's dysfunctional family drama, That Face (at the Royal Court).

More worryingly, London's commercial Theatreland seemed to be overrun with cruddy musicals. Desperately Seeking Susan, with the old hits by Blondie grafted on, was really just desperate, and Kismet was unbelivably awful tat at the English National Opera. That was surely the gobsmacking nadir of the year. Still, Hairspray was bouncy fun and, furthermore, Shakespeare made a distinct West End comeback, with director Rupert Goold's ingenious Stalinesque Macbeth starring Patrick Stewart, and with Ian McKellen in Trevor Nunn's RSC King Lear (respectively transferring from the Chichester Festival and Stratford). Kate Fleetwood gets my vote for Actress of the Year for her Lady Macbeth, an electrifyingly fierce femme fatale with suppressed vulnerability. McKellen's Lear was unforgettable too, like an imperious tsar with a rough Cossack side, blended with the doddery sweetness of a Chelsea pensioner.

Finally, for several regional theatres it has been a rocky twelvemonth and now there's a new furore about swingeing cuts by the Arts Council of England. The Bristol Old Vic, the Exeter Northcott (having only just opened after a 2.1m redevelopment), Guilford's Yvonne Arnaud Theatre and Derby Playhouse are all in jeopardy. Alas, this is not a happy ending.