Mary Lee Settle, a National Book Award-winning novelist who founded the annual PEN/Faulkner Award for fiction, died of lung cancer Sept. 27 at her home in Ivy, Va., near Charlottesville. She was 87.

Best known for her "Beulah Quintet," a panoramic fictional series that explored the history of her native West Virginia, Ms. Settle published 15 novels and seven other books during her career. She was considered a "writer's writer" whose well-wrought works -- drawing on her worldwide travel, painstaking research and unerring ear for dialogue -- brought her literary respect if not always public acclaim.

In 1978, her novel "Blood Tie," about British and American expatriates in Turkey, where Ms. Settle had lived in the early 1970s, won the National Book Award for fiction. The next year, she was a judge on the fiction panel, which awarded first prize to Tim O'Brien's "Going After Cacciato," instead of the bestselling "The World According to Garp" by John Irving.

Upset by the obscurity of the fiction winners, the New York publishing industry canceled its support of the awards and changed the voting rules.

She envisioned what she called "a community of writers" who would encourage one another and, perhaps, make a larger impact on American life. In fall 1980, Ms. Settle and some friends from Charlottesville launched a competing group that would present an annual prize for American fiction, which she called PEN/Faulkner Award. (PEN stood for poets, editors and novelists; Faulkner was a salute to novelist William Faulkner, one of Ms. Settle's chief inspirations.) The awards would be judged by writers, not by industry insiders, and no favoritism would be granted to bestselling authors.

Since the first award was presented in 1981 to Walter Abish for "How German Is It," the PEN/Faulkner has become one of most prestigious honors in American letters. Headquartered at the Folger Shakespeare Library since 1983, PEN/Faulkner carries a first prize of $15,000, with $5,000 for each of four runners-up. It also has an ambitious educational program that brings well-known authors into high schools in Washington and other cities.

Ms. Settle was on the PEN/Faulkner board until her death.

"She really believed in the power of books to enlarge the imagination of the readers," said novelist Thomas Caplan, who helped organize PEN/Faulkner.

Ms. Settle was born July 29, 1918, in Charleston, W.Va., and lived in Kentucky, Florida and her mother's ancestral home in West Virginia as a child.

In a 1987 interview with The Washington Post, Ms. Settle described a childhood that gave her "a familiar sense of the mountains, of the daily life of a small town, of coal, of an atmosphere of violence that seemed taken for granted."

After two years at Sweet Briar College in Virginia, Ms. Settle turned to acting and even tested for the movie role of Scarlett O'Hara in "Gone With the Wind." She moved to New York and worked as an actress and model before her first marriage in 1939.

During World War II, she lived in England and served in the British Women's Auxiliary Air Force before transferring to the U.S. Office of War Information in London. She worked for magazines in New York after the war, then returned to London, where she wrote fiction and plays and penned an etiquette column under the name of Mrs. Charles Palmer.

Her first novel, "The Love Eaters," was published to soaring reviews in 1954. Two years later, she published the first of the five novels of her Beulah Quintet, "O Beulah Land." The others, published between 1960 and 1982, are: "Know Nothing," "Prisons," "The Scapegoat" and "The Killing Ground."

In a Washington Post review in 1980, novelist Anne Tyler described "The Scapegoat" as "a quiet masterpiece."

Ms. Settle taught off and on at Bard College in New York state, at the Iowa Writers' Workshop and at the University of Virginia. She lived in England and Turkey from 1969 to 1974.

"I said if Nixon was elected president, I was going back to Europe," she told The Post in 1987. "He was and I did."

She had a deep, gravelly smoker's voice and cultivated a wide circle of literary friends, each of whom she invariably called "darling."

"She had a kind of charisma," said novelist Susan Richards Shreve. "She was always curious, always obsessed, always impossible and captivating."

Her marriages to Rodney Weathersbee and Douglas Newton ended in divorce; her third husband, William Littleton Tazewell, died in 1998.

Survivors include a son from her first marriage, Christopher Weathersbee.

Rooted in the South but restlessly peripatetic, Ms. Settle wrote nonfiction books about Turkey, Spain and the Scopes monkey trial in Tennessee, as well as a well-regarded 1998 memoir, "Addie," about her family's heritage.

In her 1989 novel "Charley Bland," Ms. Settle wrote of the irresistible pull the South held on her central character and, implicitly, on her own life: "I am a Southerner, and there is bred in us, as carefully as if we were prize hounds, a sense of betrayal in leaving our roots."

Mary Lee Settle won the National Book Award for fiction in 1978 for her novel "Blood Tie." Much of her work centered on the South.