The homemade spray-painted curtains say it all.

Hanging at either end of a 20-foot pole suspended above a small stage they announce a celebration of do-it-yourself creativity. From behind their folds will appear a life-size horse cut out of cotton and drawn across the stage on curtain rings, a cloth trumpet drawn out to the notes of a toy kazoo and a menagerie of robed and masked players.

It is the Mystic Paper Beasts Theater Company, a family troupe of Daniel and Melisande Potter and their two daughters, Chloe, 7, and Giselle, 10. The are, they announce, "traveling from town to town, like in the olden days, singing the news about great kings and queens."

This month, through Feb. 1, the troupe is telling the story of "Isabella: Queen of Heart" at the Smithsonian Discovery Theater. The play, inspired by Portuguese parades in their home town of Stonington, Conn., is a fantasy trip of improvisation, homemade masks and recycled costumes and props.

"Our costumes are all trash," Melisande explains to a young questioner in the audience. "We get a lot of our things out of the wastepaper basket. They are things that other people throw away which are useful to us."

The story of the play is sung and told by the Potter parents to musical accompaniment, including Melisande playing an accordion and a xylophone (sometimes simultaneously) and Daniel blowing on a clarinet and tapping at a percussion ensemble of metal ashtray, showerhead, bicycle bell, drum and lampshade.

This same ingenuity of finding new special uses for everyday things is displayed in the play's props which pleat open and pull out with the surprise of a pop-up book. When the fleet sails, a string of cardboard sailboats is pulled across the stage.

There are wooden poles with robes and masks, cardboard faces tied to the feet of the two girls and tiny puppets dancing between Daniel's legs.

Each improvisation brings a "look at that!" from children and parents in the audience.

Contact between the family troupe and their audience is immediate. As soon as the lights dim, a small monkey figure in red satin and a fur tail darts across the stage and into the audience, patting babies' heads and touching children's hands.

As for the girls and their parents bound about in bare feet ("so we won't slip during our quick costume changes"), one-piece white union suits and assorted robes, the play takes on the gleeful abandon of an after-hours romp with Peter Pan. There is the same conspiratorial let's-all-be-kids-together and play make-believe.

There's no complicated choreography, but elfin girls with delicate faces and wisps of hair falling across their eyes perform somersaults and pirouettes, or mimic the short hobbling steps of an "old lady."

It is the seeming simplicity of somersaults and painted cardboard faces which inspires the children in the audience to pull out their scissors, paints and cast-off curtains for their own home productions.

The fact that two of the troupe's players are children is one of the play's greatest attractions. Chloe and Giselle can do it, they're having fun and so may other children.

"Children are naturally creative and have a gold mine of fantasy information," says Melisande. "I learn from Chloe and Giselle how to be completely free and uninhibited."

At first, 7 years ago, the children were off center-stage and watched from the sidelines as their parents performed their first team effort -- a puppet show for the Mystic Marinelife Aquarium's International Whale Day.

The show was a natural progression, they believe, from their already creative careers. Daniel is an architect, sculptor, and artist, who exhibited his first painting at the age of 12 in New York City, and had just begun experimenting with making puppets. Melisande is an illustrator of children's books, concert pianist and dancer who debuted as a professional ballerina at the age of 5. She had just received a literary grant and was writing fantasy plays.

Other adults joined and left the troupe and then in 1978 the family was alone together, with an animal truck and headed for the Swiss Alps. As they moved from one European town to the next, local actors joined the troupe and they all performed in the local language.

Chloe and Giselle, by this time, had graduated to performing roles and to passing the collection hat.

"It was intereting," says Chloe, recalling her 4-year-old perspective. "But I got too tired and had to get picked up when we went to the museums."

The nine-month European tour, the 200-some plays a year, and the weeks away from home and school friends are all worth it, according to Giselle.

"I like being able to do something different. And when we travel, we have our van, and we can sleep on matresses on top of our trunks." (The Potters currently are housed with friends in Virginia.)

The Potter parents are very protective of their children, trying to give them a balanced blend of home-based security and on-tour experience, of theater fantasy and day-to-day reality.

"We are home more than we are away, and we are involved in the children's school," says Melisande. "They are proud when I bake cookies for the school sale. And when we help their classmates develop a play, they can see other children doing what they do. When we are away, the children bring their schoolwork with them, researching at local libraries and museums. Whatever they are learning, such as Giselle's violin lessons, we incorporate into the play.

"Theater pulls us out of our own personal world and into a bigger place. It gives a kind of clarity to our lives and a real purpose. As we are sharing and harmonizing and using all of our talents, we are making something useful for other people.

"We're going to go with time and not look into the future too much. The girls will grow out of their diminutive roles and may want to go in their own direction. But whatever we do, we will always be making things together."