'I am big, it's the pictures that got small," snaps Norma Desmond, as she seeks to explain the collapse of her star status many years ago. But the truth is that Norma fell by the wayside when sound films came in, her voice or acting style judged unsuitable for the new medium. She has retreated to her Hollywood mansion, forgotten and seething with bitterness. Then young scriptwriter Joe Gillis knocks at her door, wanting to use the phone when his car breaks down. Quick as a flash, Norma smells an opportunity, and sinks her scarlet-painted talons into Joe. He must move in immediately, and write the script for Norma's comeback film.

It would be easy to play Joe cynically, as a man simply out to milk a deluded old woman. But director Craig Revel Horwood and actor Ben Goddard reveal Joe as a much more multi-layered character. His conscience struggles with the certain knowledge that Norma's film will never be made, and the fact that he has abandoned his girlfriend Betty (Laura Pitt-Pulford) - they are supposed to be writing a script together. Also impressive is Edward York as Max, Norma's butler, a man with many pent-up emotions of his own. Max has perfect timing - he knows exactly when to mention that "Madame" has twice attempted suicide. There's a telling cameo, too, from Nick Lashbrook as Cecil B.de Mille - he represents Hollywood at its most false as he gushingly welcomes Norma on to his set. His eyes, however, are saying: "Who the hell let her in here?"

But towering over all is Kathryn Evans's performance as Norma. Her singing style, acting, and body language all switch in an instant as Norma's volatile moods change. Aging visibly as events unfold, she somehow keeps your sympathy even when the utterly self-centred Norma is at her most poisonous. It is difficult to imagine how the part could be better played.

Also exactly matching the changing moods are Sarah Travis's arrangements of Andrew Lloyd Webber's score. She capitalises on Lloyd Webber's use of a repeating basic theme tune, and his careful changes of key, by underscoring Norma's melancholic moments with a solo cello while, in contrast, using extrovert big band arrangements for chorus numbers. As usual at the Watermill, the uniformly excellent ensemble cast doubles as instrumentalists.

Words were occasionally swamped by instruments on press night, and the extended ending slightly over-eggs the pudding. But this is very possibly the Watermill's best production of a musical. In a just world, this intimate show should transfer to a suitable West End theatre.

Until Saturday, August 30. Tickets: 01635 46044 or online at www.watermill.org.uk