Easily the most successful aspect of Peter Sellars' tenure as director of the Kennedy Center's American National Theater has been his inauguration of the Free Theater.

Here, merely by lining up at the door, theatergoers have been able to see an impressive selection of companies and performers eager to stray from the straight and the narrow. They have ranged from New York's Wooster Group to those international gadflies, Franca Rame and Dario Fo. The fare has been iconoclastic, provocative, befuddling, amusing and, yes, occasionally boring. But in a city not known for its radical taste in the arts, the Free Theater has functioned as an eye-opener.

Now Sellars has brought the Squat Theatre to town for a run through July 6. "Dreamland Burns," the company's mixed-media examination of a day and night in the life of a young girl on her own in New York City for the first time, carries a caveat: It is not for the literal-minded.

The production is forever pulling the carpet out from under your feet. Either you surrender to its haunting moods or you don't. The laws of reason are no more applicable here than the principle of gravity in outer space. "Dreamland Burns" is an invitation to float through a wonderland of talking mannequins and exploding chandeliers.

Founded in 1969 as a theater collective in Hungary, where its work was subsequently banned, the Squat Theatre led a peripatetic existence in Europe before settling into a storefront in lower Manhattan in the late 1970s. (Its name comes from its history of having to play in hastily improvised locations.)

"Dreamland Burns" is the work of outsiders in a new land -- amazed by what they see, but not yet a part of it. Written and directed by Stephan Balint, it begins with a 45-minute film, depicting in often mundane black-and-white images the day Alexandra (the deadpan Eszter Balint) moves into her own apartment. She throws a party, breaks up with her boyfriend, who may be a petty criminal, then wanders off to a bar. It rains. The cabbie who drives her home reads her palm. On the sidewalk, she chats with a bum. Back in her apartment, she falls asleep. The film is a kind of "Breathless" in reverse, unleashing a European innocent in amoral New York City.

Thereupon, the movie screen rolls up to reveal a wall of real fire. We are entering the three-dimensional world of this woman's subconscious, populated by many of the characters we have just seen on the screen. This time, however, they are portrayed by live actors and papier-ma che' mannequins. By projecting film onto the blank faces of the dummies, the inanimate quickly becomes animate. It is the actors -- with their emotional reserve, their touching stiffness and their lingering accents -- who appear dreamlike.

The second half of "Dreamland Burns" subscribes to the same seemingly irrational sequence of events as the filmed portion. Alexandra and a girlfriend have an argument to the mounting strains of Wagner's "Go tterda mmerung." Unexpected heavy objects tumble from the sky. Two ominous thugs -- the moving men from the film -- smash the face of the dummy representing Alexandra's boyfriend, then drill a hole in its back and remove a fish, a liquor bottle and a gun. A child emerges from a rolled-up rug.

Some of the sudden stage effects qualify as authentic coups de the'a tre. A full-sized Checker cab pops up, as if an invisible hand had just turned the page of a gigantic children's fold-out book. A cloud of smoke dissipates to reveal the skyline of New York, a lovely panorama of twinkling lights. At the end, the statue of the Virgin Mary -- crowned with a neon halo -- descends from above. The cast kneels.

Meanings are up for grabs. But the cumulative effect of "Dreamland Burns" is one of gentle resignation. Although the universe it depicts is sometimes threatening and certainly alienating, the piece is without anger. The abrupt changes in scale -- a suitcase crashing to the ground with a thud, followed by a chiffon scarf -- are startling. The 90-minute evening alternately lulls and surprises.

Yet it seems to me its thrust is primarily meditative. This is best viewed as a poem about lost creatures, drifting through a landscape that is about to spontaneously combust. If they are helpless, they are also defiantly cool about their fate. The true disproportions of their lives can only be revealed when they sleep.

Whatever you make of it, it is hard not to be impressed by the technical wizardry that has gone into this particular magic box. You can see nothing else like it in town. But then, that could serve as the motto for the Free Theater itself. Among other things, Sellars is our Sol Hurok of the avant-garde.

The remaining free tickets are distributed nightly, 15 minutes before showtime.