THE REASON for coming out of cover and talking directly like this," the narrator of Peter Straub's Floating Dragon confesses after 60 or so pages, "is that I lived through everything that happened in the lower end of Patchin County, and the book I was writing turned into this one. What I didn't know about, I had to make up, but it all could have happened, and maybe did, just the way I wrote it." Later, 60 or so pages from the end of the book, he says, in the rather grumpy voice that has now become familiar, "All I can do is tell you what I saw with my own eyes--what I thought I saw, was sure I saw. That way I stay honest, and if you want to brood about 'reality' you do it on your own time."

That question of reality is central to all of Peter Straub's fiction, especially to his last two, and most successful, novels, Ghost Story and Shadowland. Here, in Floating Dragon, he tackles it again. The result is a book that positively bubbles with invention, jammed with characters, color, events, hackle-raising twists of fate, horrific monsters, terrifying nightmares, and a reality that shimmers and shifts as much as the noxious steam from a witch's cauldron.

The tale is told by Graham Williams, an aging novelist and resident of one of New York's affluent bedroom communities, Hampstead, Connecticut. Hampstead is the sort of place where life should be green and golden. It is not, and the encroaching, threatening darkness quickly touches and chills the lives of the book's four central characters: Graham Williams himself, Richard Allbee, a former resident now returning with his pregnant wife after a long sojourn in London, Patsy McCloud, the battered wife of an upwardly mobile corporate monster who himself succumbs early to the dark forces working on Hampstead, and Tabby Smithfield, a boy who, like Richard, had left the town and has now returned.

That is the present, but the past figures largely here too. When the Hampstead area was first settled in 1640, the first farmers were named Williams, Smyth, Green, and Tayler, joined later by a mysterious landholder named Gideon Winter, in whose wake came only trouble. The four contemporary characters are all descended from the original families who held the land: Williams, of course; Smyth has become Smithfield; Richard Allbee's mother was a Green; Patsy McCloud is a Tayler. The current namesakes have come together once again, and their conjunction seems--and that is the best either Graham Williams or the reader can say on the subject-- seems to make it possible for Gideon Winter, their nemesis, to return also.

Straub weaves these strands of past and present together so tightly and intricately that his four characters have joined forces and are already questing after and doing battle with the monstrous Winter before either they or we have consciously accepted the reality of what is happening to Hampstead. And what is happening to Hampstead is horrible: madness, murder, fire, plague, nightmare apparitions, ecological disaster, bats, dragons, hissing serpents, a diabolical mirror that spews evil, the bellowing ghost of Senator Joseph McCarthy, shape-shifting monsters, a ferocious giant dog (with a pat on the head to Stephen King's Cujo), and, more than once, the earth itself actually opens to swallow both buildings and people.

Or so it seems, for we can no more rely on Graham Williams than he can rely on the evidence of his own eyes when he is doing battle in what he calls a "Grand Central of the Dead." What really matters, and what Straub conveys chillingly well, is that the evil at work in the world is total, terrible, and, worst of all, random. It hurts, breaks, destroys, and it simply does not care.

By the very end of the story, the four battlers on the side of good are in some ways better and stronger, but they have been hurt too. At their peak of intense intimacy, they were "as clannish as lovers," but when the battle is ended, they rapidly drift apart, and their moment of highest human glory, like their common enemy, is a nebulous thing of the past.

Straub is a deliberately literary writer, conscious of and unembarrassed by his debt to both antecedents and contemporaries. In the past, he has paid tribute to Nathaniel Hawthorne and John Fowles. Here his debt is primarily to H.P. Lovecraft, the 20th-century American author of macabre tales whom many consider the equal of Poe, and whose work is certainly the strongest influence on writers of horror in this century. Straub's Hampstead shares with Lovecraft's mythical Arkham a propensity to evil, and the lurking, growing, dangerous figure of Gideon Winter, a force inherent in the town itself, is something Lovecraft would have recognized instantly. (Although Straub does not make the reference overt, Richard Allbee even visits the street in Providence where Lovecraft lived.) In addition, there are several stylistic echoes of Shirley Jackson, and Straub's mad dog will romp forever with King's Cujo in some canine corner of hell.

Not everything in the book works perfectly. The least successful plot element is the release, from a secret industrial laboratory, of a mysterious gas called DRG-16, called by its perpetrators "a wild card," that wreaks further havoc in Hampstead, but this is never fully integrated into the story or the lives of the central characters, leaving some loose ends and leading Straub into some perfunctory scenes that only interrupt the other horrors in progress.

If Floating Dragon is sometimes baffling, flawed in some structural elements, and perhaps a little too long for its own good, it is at the same time both ruthlessly contemporary and steeped in tradition, gruesomely chilling, and told withha narrative strength and a lively colloquial style that readers should welcome. It will be that most welcome addition to the best-seller lists, a thoughtful and intelligent novel that is compulsively readable.