He is the tough, obsessive genius of cinema. So Hollywood had better listen when Martin Scorsese says it has to change. Interview: Ariel Leve

Martin Scorsese doesn't ride the subway or walk the streets. He doesn't own a computer or a mobile phone. The life he pays attention to is the interior one.

He seeks perfection - sees it in pictures - and what makes him important and distinctive, in an industry given to fiction and embellishment, is this: he wants to tell the truth.

He is a man whose few necessities are modest, but whose modest necessities are very important to him. What he cares about is elusive, difficult to define: an idea, a vision, exceeding a limitation. It is what he doesn't care about that explains him. He doesn't care about being seen at the right party, or purchasing the Malibu estate, or sharing the stage with the president at White House benefits. And he doesn't feel like he's missing out. Like the Cheshire Cat in Alice in Wonderland, he is here but you don't see him: grinning only to an intimate few, reclusive to the point of invisibility.

There is a timelessness that shapes Scorsese's values, old-fashioned and anachronistic; a 21st-century man living an almost 19th-century life - just film, family, books, art and contemplation. It is that focus which drives him and his art, especially now, with his latest movie, Gangs of New York.

It is late on a New York November afternoon and we are sitting in his private screening room, in his private world. Though he can't be much taller than 5ft 6in, his presence fills the room. He leans back in the dark-green velvet viewing chair and smiles. That this apparently reclusive artist is so relaxed about sharing the space with a stranger is immediately disarming. When he speaks, it is not so much a torrent as a meteor shower of words. 'My idea with this movie is that for the first 15 minutes you wouldn't know what world you were in. The title is at the very end, because even though with this picture I know there's a great deal of expectation, I kept thinking of someone walking in off the street, who didn't know anything, seeing those first 15 minutes. You wouldn't know what world you were in; it could be post-apocalyptic, medieval, timeless.'

Scorsese is a man of intense warmth and humility. Everything about him is definitive. The sound of his voice is sonorous and clipped. Most people fit sentences into the patterns of their breathing, but for him, resting is talking; he fits in the breath only when the words allow. The clothes he wears - a tailored navy blazer and a checked shirt that has stayed remarkably crisp throughout a long day - and even his teeth - straight, large, white - seem precise. He has an uncontainable energy for sharing stories and gauging reactions; his responses are revealing, animated. It is impossible to not get swept up in his passion - and this film is something he is passionate about.

Gangs of New York, based on the book by Herbert Ashbury, is an epic period drama set in the world of the ruthless Irish and anti-immigrant gangs of the 1860s - the Nativists, as the latter were called - who struggled for power around the infamous Five Points, today an area northeast of New York's City Hall, in south Manhattan, a short walk from where Scorsese grew up in Little Italy.

It is not surprising that this material found its way to Scorsese. It touches on three of his familiar themes: history, gangsters and survival in New York. Capturing hopelessness and ugliness and making it sensual is something he thrives on. The characters seek identity, placement, redemption. Socially and politically, the film presents an ethnic turf war fought on the boundaries of fear and intolerance of what's new. Aesthetically, it is an assault on the senses; a portrait of the Big Apple with explosions of hopelessness and rage. The result is a bludgeoned and beautiful violent ballet.

Scorsese's emotional connections to the story - ostensibly the tale of a murdered father and a son's thirst for revenge - run deep. He's been in love with the book for 30 years, can still remember the moment he first saw it. He connects to the madness, the idea of a birth of a city, how people have been made to live here, the connection to roots that it explores. 'It's very emotional and it goes back to growing up... [For me] the family was what it was all about, almost as if the rest of America didn't exist. The family was really how I got connected. The father and the son - the son having to rise above to change and make things different; that dynamic. But also what makes a man, what a man's supposed to be.'

He felt driven to make it. As is often the case with Scorsese, he is too close ever to be satisfied. The nature of artistic success or failure causes him far more anxiety than the ramifications of the box office - and with a budget of £60m, his most expensive to date, there are certainly ramifications for the bean-counters at Miramax should the film not be a commercial success.

'It's a big gamble. For me, the success is getting it as close as possible to the picture I wanted to make. Now I have to let go. How it all turns out financially, I have no idea. I have no idea if this is a blockbuster or whatever. I don't think that way. I really only become involved with the studio when I ask for something and I can't get it. A big part of me feels relieved it's over, I guess.I found I had a lot to learn. It was really a great learning experience.'

History regularly provides us with artists who are dedicated to recording reality, pointing at the world, re-creating it, forcing us to pay attention. Scorsese is one of these people. He challenges viewers to get inside the ring and participate so we can understand what it means to get knocked out. His violence is always about something. It's gruesome, voracious and completely enthralling. Or maybe it's just that the imprint of the chaos from the streets where he grew up has never left. No matter what its origins, it is important to Scorsese to convey that desperation as humanly and accurately as possible and this, his commitment to authenticity, is the compass he uses while wandering through the moneyed and poorly scripted desert of Hollywood.

He learnt early on how to tell a story, while making student films at New York University. It wasn't until seven years later, when he made Mean Streets, at 28, that he became confident in his voice. 'That's really when it hit me: I had no choice. There is always doubt, but when the desire is so strong you don't listen - you just go.'

Now, at 60, having directed more than 30 films, including such American classics as Mean Streets, Taxi Driver, Raging Bull, GoodFellas and Casino, where does he stand in his profession? 'I could say that I have to remember my place. I really must. When you're younger, you take on everyone; it's unbridled ambition and I think that's part of what fuelled me. You know, take on the biggest names: let's do it like William Wyler; we'll do it like [Orson] Welles; we can do [John] Cassavetes and Michael Powell and [Emeric] Pressburger, and we could probably surpass that and do it as well as, or take something that they did and go further than them. A lot of us thought that way in the 1970s. But I realised a while ago that it can't be done. They come from a different time and place. I think there was an English critic who said once that we all are, in effect, mannerists. Let me put it this way: there's a pantheon and I know that my position is one of an acolyte.'

Scorsese misses the atmosphere of film-making in the 1970s. Films were allowed to breathe and to be novelistic - think Midnight Cowboy, Five Easy Pieces, Network, Chinatown. The images were fearless. And one can also see his attraction to the lushness of Otto Preminger's physical details, in the sensuality of the blood and sweat in Raging Bull; the blurred and glistening street images from Taxi Driver. It's a continuing thread. Who else could make 19th-century crystal and cutlery as erotic as Scorsese did in The Age of Innocence?

'Today there is too much money at stake and it costs too much to take a risk. I'm talking about Hollywood films. Some of the big Hollywood productions - they are not reflecting the best. We [film-makers] will have to start to ask, what is really important in life? What's the point of living?'

He looks genuinely concerned. He sees film at a crossroads and, post-9/11, sees the metaphor shared with mainstream America. The United States and movies have to change, and with it, the image that the US projects.

'I don't accept it, I don't lament it - but something is going to happen. The situation in the world today will force a rethinking of what is important. Our values - the image that we want to have across the border - will have to change.'

The problem with big-budget Hollywood films is that nobody wants to offend anyone. Having an opinion, especially one that could be seen as unpatriotic, is too much trouble. Studios are run by corporations, and their priority is probably not the integrity of American cinema. Most Americans go to the movies to forget about what they've seen on the news. So how do you inform and edify a country that prefers to be ignorant? 'Well, I understand the dilemma. It's important to show solidarity, but it's important to think about other cultures too. That's why foreign films are so important in America. To show another point of view, to enrich the perspective in places like Middle America. People have to see and understand why we're in the position we're in today. This is a great opportunity to learn. Unfortunately, we're probably going to war.

'People want things that are easy to digest, pre-packaged, so even with the best of intentions a picture comes out hollow - a series of platitudes. The old Hollywood was about making dreams - escapism. The golden age dictated the message; it was codified, but if you wanted to believe in it, great. Film is really a popular art form which means the less chances you take - you know, the phoney happy ending - it pleases the most people. People are told they want that.'

New York, New York, Scorsese's 1977 ode to the city and old-style Hollywood musicals, could be said to have had a happy ending even though the main characters (Robert De Niro and Liza Minnelli) don't end up together. Musical numbers stripped away, it is about the relationship between two creative people and if it's possible for them to be together without tearing apart each other's art. When the answer is no, because the struggle will destroy them, it is heartbreaking but a relief. Only Scorsese could extract such satisfaction from so much volatility. This is Scorsese in a nutshell: the palpable anguish in the choice to put the survival of the creative spirit - one's art - above the fiery, self-destructive emotional desire - one's heart. It is, as he avows, never really a choice.

His heroes are haunted, complicated and wounded, emotionally and physically. Yet even though most audiences gravitate towards a kinder, gentler hero, he is unable to stay away. 'I've always believed, if the characters are real, they're worth spending time with. People say, 'Why would you care about these characters, the troubled ones?' Because they're real. Cassavetes, Preminger, they knew how to trust their voice and tell the truth. Of course, it is a relative truth. But I guess if you think you know it, it makes it so.' He pauses. 'Ever met Peckinpah?' No, I say. Has he? 'Oh yeah.'

The emphasis hints at inspiration. Sam Peckinpah was gritty and dark. On screen he was admirable; authenticity trumped morality.

Scorsese is on an emotional rollercoaster when making films. Excited and enthusiastic, he then crashes, wondering how to go on. This happens pretty much every day. 'It's wanting to know your limitations, being afraid of them, then accepting them and trying to say, 'Okay, it's a limitation, but is it negative?' Finding ways out and finding new ways of doing things; that keeps me going.' But does it ever paralyse him? 'No! Look, getting discouraged is terrible. But you've got to get up and do it again. Get back in the ring. Keep slamming away.'

He says the people closest to him know when he is having a 'discouraged' moment, but he keeps it hidden from the actors. 'I like to create a nice atmosphere where everything is possible, so they can try anything. And usually, with the actors, I find myself getting very enthusiastic. But my cameraman - that's another story. And my assistant director... Ooh, they see a lot of the crashes. And then we pull back up and move on. Michael Ballhaus is very good that way with me. Usually in the mornings I'm not so good, so he'll look at me and smile and say, 'Today, Marty, we'll do the shot where it starts on the glass of water, tilts up to the tape recorder, moves around her face, tracks around her shoulder, then we see the screen and there is a movie projector,' and I say, 'Oh yeah, that's going to be a lot of fun - let's go!''

He laughs loudly, deeply, from his diaphragm. Then abruptly stops. 'Ugh, but sometimes the practical problems - you know, getting to the set, the traffic, and I hate those trailers; dealing with the problems like, you know, who's sick? What costume has been destroyed? During the shooting process there are times when you get there, full of energy, and the rain hits and you can't shoot. It's so depressing, it's awful. But I've been lucky over the years with the people around me. I know that.'

Getting older has made him more reflective, more philosophical, but still things get him annoyed. Like telephones. He breaks a lot of them. His editor, Thelma, says he's like Roderick Usher from Edgar Allan Poe's The Fall of the House of Usher, a character who suffers from a strange illness, a 'morbid acuteness of the senses'.

'I hear every movement,' he says, tensing his jaw for full effect. ''Must you turn the pages that loudly?' It's very funny. It's impossible. The poor people in there with me. Looking at rushes is very funny. I would tell someone, 'Watch this,' but then they have to make notes. Yeah, it's very much a pet peeve, when you're trying to concentrate. And I'm a person who's kind of noisy, effusive, I think. It's part of the creative process, I guess.'

Just then the publicist comes in and taps her watch. Time has become relevant again - ours is up. 'Go ahead,' he says softly, reassuring me he's willing to ignore limitations. 'Don't worry.'

Okay: when was the last time you surprised yourself? There is silence. A minute passes, but it feels like an hour. A minute of silence alone in a room with Martin Scorsese is heavy. He breathes, sighs, contemplates. 'Huh.' He whispers. Silence. Another 'Huh.'

'Do you mean in my work or in my personal life?' Both. Again, silence. And another 'Huh.' The answer, when it finally comes, is exquisite. Scorsese, the creator of visceral epics, enemy of the squeamish, champion of misfits, is ambushed by the discovery of his own moderation.

'I find that now my work has to be balanced with a personal life. Very simple. I think there's been a period of transition where I'm sort of surprised by... getting older and getting, uh, not wiser, but a little more tolerant about certain feelings and approaches towards life. Values have changed. Being younger - it's not like I had a choice making movies. It was like having an illness or something, you just do - and to a certain extent my personal life...' He pauses. 'Even when I tried, I didn't know how... And you can say, 'Oh, you describe your films as an illness, but it's just a disguise for being selfish.' Well, I just didn't know how to do anything else. I'm not sure if I'm selfish or not. I think in terms of good self-criticism - Catholic thinking. You automatically go in guilty - you know, original sin - and you take it from there. My feelings are coloured by the tradition that comes from the Catholic Church - really maybe more Mediterranean. Southern Italian. The nature about what a human being is and the nature of what's right and wrong, and also the nature of guilt, is very strong from how I was raised.'

Age brings calm, and this surprises him. 'At least I'm aware of a balance now. I don't know if I can achieve it. It's possible; the potential is there. Because at this point, you start to make certain choices. You ask what's important. Before, I don't think I was aware. I was just a driven person.' So would it be interesting to ask people he was close to during that period how he was? He shakes his head vigorously and winces. 'Oh, no. No, no, no! They'd say, 'Arrogant, ambitious guy running around doing anything to get films made.' Yeah, it was like a disease, it had to be consummated.'

Time is definitely up. But Scorsese promises to call me at home. He's a man of his word. The following evening he phones from his home on the Upper East Side, his young daughter in the background. 'I'm sorry to call half an hour late,' he says. 'It's my daughter's birthday today.'

It comes as no surprise that if Scorsese wasn't making films, he'd probably be doing something with music. He doesn't play an instrument, but considers that to be the highest art form. Early on, he thought of being a painter. He mentions the room he's calling from, how he's looking around at the walls covered with art: images, postcards.

'As far as most modern art... I don't get it. I have no idea if it's good or bad. I was moved when I saw the last sculptures Michelangelo made, and I thought they were very modern. It's like there was the spirit inside the stone coming through.'

He is referring to sculptures in the Accademia in Florence: the Prisoners. They are figures captive in stone: half-emerged, frightening in their potential, frozen in time. There's that timelessness again. Scorsese's characters are often in the same state, unfinished and perpetually pursuing completion: Travis Bickle in Taxi Driver, Jake La Motta in Raging Bull. Cinematically, too, one can see the idea driving him: the capturing of the eternal inside an instant.

Scorsese grew up in Little Italy, frequently incapacitated by severe asthma attacks that kept him confined to the family's tiny apartment. He would be up at night, observing the streets from his window. It was always very alive. Drunks fighting, knives being pulled, people yelling; the degradation was palpable and yet, simultaneously, his devoutly Catholic, working-class Italian-American family was cocooned in a tight-knit community. Unable to play sports, Scorsese would go to the movies with his older brother three or four times a week to get out of the house. His love of movies competed with his other love, religion, and the conflict between life on the streets and life in the church - sin and redemption, morality and immorality - is omnipresent in his work.

'I grew up in tenements and thought everyone always lived in apartments. For a while I lived in the Metropolitan Tower on the 75th floor - that was wild.' I tell him it's a good thing he doesn't have vertigo. 'I do! I was going to bed at night leaning against the walls.' Why did you take the apartment if you have vertigo? 'That's a long story - it was the only one available, okay?' The only one available in all of New York City? 'Yep. The only one with two bedrooms. I had my daughters coming to visit. Anyhow, I was too busy to look.'

So it wasn't the only place he could find: it was probably just the first he looked at that provided him with the basics. For him, time is to be spent on film, not house-hunting or socialising. 'I'm not social. Sometimes I'm invited to dinner - I have a couple of close friends - but I spend most of my time in the screening room or with my wife [his fifth, the book editor Helen Morris] and daughter. I took this place because I thought the street was nice. It has a tree in front of it; not that I really see the tree but, you know, it's quieter. I'm always interested in quiet. Actually, it's not that quiet - it's on a through street, but if you're in the back it's not that bad. Also, now I have a three-year-old daughter, so, well, quiet's gone.'

Two months ago they went to Maine. It was the first holiday he has taken since 1972. They forced him to go. For two weeks. And he read, the whole time. Did he go out at all? 'No, not really.' Did he watch television? 'No, not really.' Was he miserable? 'No, no, it was fine. Fine, fine, fine.' He is laughing. 'No, it was really good, but the film had to be finished, so the anxiety was there. But it was good for the family; they really enjoyed it.

'I do think when I say I don't see people - there's a split from the past. In the 1980s I realised I'm not... how should I say? I don't call people. I mean, if people want to see me, fine, but then they know what they get. I'm not imposing myself on people any more.' When it comes to the issue of calling people back, an earnest tone creeps in. 'Oh, sure, sure. It takes sometimes a day or so. But I always try to return calls.'

Occasionally, when he eats out, he will have pizza from a restaurant he likes in nearby Lexington Avenue. But grabbing a slice doesn't really happen these days. When I mention a place downtown that he should try, he gets all fired up. 'I'm not going down to Carmine Street! Do you know what the streets are like? Bouncing around the cobblestones - I can't take it any more!'

We've been talking for over an hour and now he has to go - dinner is waiting. He will return to his cloistered, timeless world, and though we won't see him out and about, being a Hollywood figure, there's a comfort in knowing he exists.

'Sometimes,' he says, sounding wistful, 'I miss being able to walk around. But I'm always in a rush these days. There don't seem to be many days - it would be good to have a break, yeah, some time to myself.' There is a pause. 'But then, you know, I had those two weeks in Maine.'