All the disused building's a stage: Punchdrunk's The Drowned Man is their most ambitious show yet

The founder of the pioneering theatre group tells Alice Jones that they are keen to keep on pushing the boundaries.

Past the wood-panelled wall and its morbid zoo of animal skulls, through the trailer park and around the corner into a shop filled with a hundred flying stetsons and – is that a warthog? "Yep," says Felix Barrett, artistic director of Punchdrunk. We are standing in the middle of 31 London Street, a former Royal Mail sorting office behind Paddington Station that has been transformed into a sprawling set for the company's new show, The Drowned Man: A Hollywood Fable.

A hundred stetsons and the odd warthog skin are not the half of it. This is Punchdrunk's first show in London since The Masque of the Red Death in 2007, and it is their biggest yet. It has, according to Barrett, "the budget of a small film". How much, exactly? "Oh, I dread to think. It's expensive," he says. "I know that we're not doing it for the money." Other statistics are more readily available. For the next six months, a cast of 34 dancers and actors will lead 600 people a night around 200,000 square foot and four storeys of warehouse. There are five hours of action, 29 hours of soundtrack and more than 100 rooms, including 15 secret spaces that audience members will not find unless they come across a character with a key around his neck – "and he takes a fancy to you".

For Punchdrunk fans (and there are plenty of them – 46,000 tickets have sold so far), this element of chance is the best thing about their shows. For the uninitiated, Punchdrunk find empty buildings, fill them with richly detailed sets and performers and then set the audience loose – wearing masks to remove inhibitions – to wander around and piece together their own play. In 2006, they took over a warehouse in Wapping and filled it with forest orgies for Faust. The Masque of the Red Death was an opium-fuelled waltz around every nook of Battersea Arts Centre. For the last two years, Sleep No More, a creepy take on Macbeth, has been selling out in a former nightclub in Chelsea, New York, luring celebrities such as Justin Timberlake, Natalie Portman and Matt Damon to its masked revels.

The Drowned Man is a return to where it all began. It is based on Woyzeck, Büchner's masterpiece about a demented soldier who kills the woman he loves and then drowns himself. Barrett did it for his graduation show from Exeter University 13 years ago. Unsure how to stage an unfinished play, he ripped it out of the theatre, stuck it in a disused barracks and ran the action on a 20-minute loop. He also made the audience wear masks. "I thought it was going to be one of many experiments but then a middle-aged woman came up to me at the end and said, 'I'm so sorry. I don't know what came over me. I ended up sitting on the performer's knee…" I suddenly realised the mask was a powerful thing. And Punchdrunk was born."

Barrett, 35, has been bashing at boundaries ever since. For one of his earliest shows, he kidnapped his audience, sending them to an empty 200-seater theatre, ready with a set on stage and programmes on seats, before bundling them into a car and driving them into the woods for a spooky walkabout. "Only about four people saw it, because it was too ambitious." Nevertheless, the Punchdrunk creed continues to be fortune favours the brave. Audiences are encouraged to follow actors, open doors and root about in murky corners in pursuit of drama. "In the theatre, you sit there closeted and you switch off part of your brain because you're comfortable", says Barrett. "If you're uncomfortable, then suddenly you're eager to receive. And everything we offer hits you twofold."

The fearless will be rewarded with a richer experience but with hundreds of different routes through the space, most will still only see about 30 per cent of the action. What about the not-so-fearless, like me, who leave worrying that they have missed the best bits? "You can always come to one of our shows and feel frustrated that you're missing action. Because you are," says Barrett. "But trust your instinct, listen to your heart and to the building and eventually, hopefully, something interesting will happen." Isn't it quite nice at the theatre to let others lead the way sometimes? "I sometimes enjoy being enclosed in some of those safety nets that we pull away," he admits. "Matilda was a fantastically strong piece of work. A West End show has its magic and its place. I just have less desire to make one."

In The Drowned Man, Woyzeck is given the Hollywood treatment, with the hierarchies of the studio system replacing the military ranks of the original. Audiences will wander through two worlds – Temple Studios and the rundown LA suburb outside it – each of which has its own storyline and its own Woyzeck, one male and one female. "We try and think of each character as being a lead in their own movie," says Barrett. "We want the audience to feel like it's one big tracking shot and they are the Steadicam. It should feel like you're making your own director's cut of our living movie."

If you want the best cut, Barrett suggests you find Woyzeck and stalk him. Like the rest of the cast – mainly dancers, not actors – he or she follows a "track" around the building, choreographed by longtime Punchdrunk associate Maxine Doyle. She auditioned 600 people. "We look for performers with an incredible presence and great dance technique who feel like they can be dangerous with their bodies," she says. All are drilled in "eye-dancing", and the art of moving an audience with a single look. "As the space has got bigger, coming across two actors talking to each other became totally anticlimactic," says Barrett of jettisoning a traditional script. "The experience is so physical for the audience, it needed the content to match."

Keen to return for Woyzeck for years, it was only when they found the sorting office, with its soundstage proportions, that it came together. "Actually we were looking to do a different show but architecturally and atmospherically the building didn't want it. It asked for Woyzeck." This production, twice the size of their New York home, is a massive undertaking. In the past, the company has been accused of money-spinning; they have done corporate pieces for Stella Artois and W Hotels while at Sleep No More tickets sell for $100 with programmes at $20.

In London, with the National Theatre as co-producer, tickets cost £39.50 to £47.50 with standard-priced programmes. "It's 10 times better. I'm not sure I could afford a programme in New York," mutters Barrett. The Drowned Man is scheduled to run until New Year's Eve at least, after which time Crossrail could plough through the premises at any moment. For now, they are in the middle of four weeks of previews, ironing out audience bottlenecks, hidden doors and all manner of problems "normal" directors don't have to worry about. A team of set-builders work around the clock to replace the thousands of props, from tins of peas to charred fragments of scripts, that are damaged or taken as keepsakes every night. "We could make it like a museum where things are stuck down, but we want it to be tactile. That little piece of Bible paper wrapped in a locket has to be there, even if only one audience member finds it," says Barrett, who with Doyle, lurks in the shadows to spy on audience behaviour. "I always find previews really painful," sighs Doyle. "You feel like you've got the show to a place where it looks great and then you get the audience in and you can't see anything."

The audience is the final piece of the Punchdrunk puzzle. So how do you control 600 roaming theatre-lovers looking for a night to remember? "They can have whatever night they want but in return they need to respect their fellow audience members. We don't tell them not to cross the line because 99 out of 100 get it..." says Barrett. "That's a boundary that we're really interested in pushing," says Doyle. Does it ever go too far? "We've had performers be kissed. It's good that it works. We want people to fall in love with them. But sometimes people don't quite get that it's not reciprocal."

Does anyone ever get lost? "We're more refined now. We have ways to make sure everyone leaves the building," says Doyle. "We did find a guy in one of our coffins at Sleep No More. He climbed in when he was drunk and fell asleep for three hours," says Barrett. "I hope he had a good show."

'The Drowned Man: A Hollyood Fable', 31 London Street, London W2 (020 7452 3000; nationaltheatre.org.uk) to 31 December