Bodice-grippers with staying power

If it weren't her real name, she would have had to invent it. Sarah Waters – like Maria Martin or Mary Ann Evans – seems the ultimate Victorian moniker, perfect for a writer of novels set in 19th-century London. Waters's debut novel, Tipping the Velvet, spans the late 1880s and 1890s. Affinity, the novel that followed, takes places in the 1870s, and in Fingersmith (Virago, £12.99) the author goes back another decade to the 1860s – when such classics as Alice in Wonderland, The Water Babies, Our Mutual Friend, Uncle Silas and The Woman in White were first published.

If it weren't her real name, she would have had to invent it. Sarah Waters – like Maria Martin or Mary Ann Evans – seems the ultimate Victorian moniker, perfect for a writer of novels set in 19th-century London. Waters's debut novel, Tipping the Velvet, spans the late 1880s and 1890s. Affinity, the novel that followed, takes places in the 1870s, and in Fingersmith (Virago, £12.99) the author goes back another decade to the 1860s – when such classics as Alice in Wonderland, The Water Babies, Our Mutual Friend, Uncle Silas and The Woman in White were first published.

Sarah Waters has just returned from Salzburg, with its cake shops and Sound of Music tours. It would be tempting to say she waltzes into the room, but in fact she looks rather tired, and anyway, here all Victorian comparisons must end. With her black T-shirt and jeans, she's a historical author in name only, and one with a contemporary agenda.

What makes Waters more than a writer of historical pastiche is the modern sensibility that she brings to her work. Her books bulge with period detail and have gripping, carefully constructed plots. There's plenty of danger, mystery, hysteria and corruption. Yet she also puts what's only ever hinted at in Victorian novels – drug addiction, sexuality, pornography – right up front. It's as if Charlotte Brontë revealed a passion for clubbing, Mrs Gaskell discussed her cocaine habit, and Charles Dickens came out.

Waters's desire to write a novel grew out of work she was doing for her PhD on the idea of history in lesbian and gay writing. She says: "I was looking at how representations and ideas about the homosexual past have changed." With the doctorate under her belt, Waters gave herself a year to write a novel. Reading current popular lesbian and gay historical novels, she was struck by how unambitious most are. She wanted to try writing something more literary, revolving around the fin-de-siècle music-hall world of cross-dressing "mashers" and the London queer demi-monde of "Mary Anns" and "Toms".

Tipping the Velvet follows the sexual adventures of Nancy King, an oyster girl from Whitstable. Falling in love with a music-hall starlet, Nancy joins her act and develops a taste for the suits and male costumes she wears on stage.

Later, she takes to the streets as a "renter", becomes the kept plaything of a rich Sapphist and finally finds true love among other "Toms" in London's East End. It's a picaresque romp with explicit sex, which suffers from having a selfish, unsympathetic heroine. It was rejected by 10 or so publishers before Virago bought it.

Waters then managed what eludes many new novelists, to produce a second novel stronger than the first. She describes the brilliantly spooky Affinity as "a swine to write". The idea that "people were paying money for it seemed just awful. It took me a long time to feel I was a writer and not a fraud. Now I do think of myself as a writer. I do. I do," she says, laughing.

Tipping the Velvet is a spunky, upbeat book. Waters was keen to try something grimmer. "I wanted to look at a whole range of lesbian identities and think about a world in which there was constraint." The first book reclaims 19th-century sexuality for women with a lesbian agenda, but Affinity explores how it was suppressed, in a society of corsets laced too tight.

The novel is written in diary form and has a genuinely haunting twist at the end. Whereas in Tipping the Velvet Waters seems to include all she knows, in Affinity she holds back, abandoning explicitness for suggestion. Where Nancy grasps each sexual opportunity, Margaret in Affinity trembles with feverish longings. Nancy kicks against society's conventions; Margaret struggles with her own inner turmoil.

Margaret is recovering from a suicide attempt and grieving for a dead father and the loss of the woman she loves. Becoming a prison visitor at Millbank, she finds an inmate with whom she feels an affinity. The medium Selina Dawes is serving time for fraud and assault because a woman died after a seance and a 15-year-old girl was found in a waking swoon with marks on her throat and her clothing awry. But is Selina what she seems?

Waters wanted to write about not only women's prisons but also spiritualism. What intrigued her was the domestic way in which the uncanny was dealt with. "The whole point of spiritualism was to domesticate the other world," she says. "It went right across society and was an industry in which women could be influential. The medium's gift was something anybody could have. You get these accounts of middle-class households having seances which include the servants. Think of all the scope there must have been for subversion of the rigid roles in such households."

So how much research does she do? "People always say to me, 'You must have done years of research.' Of course, I haven't; I've done a bit. But I'm sure part of it is just giving the impression that you've done lots," she laughs.

"Fingersmith" is slang for – among other things – a pickpocket. The story is set partly near London Bridge in the Borough, which in Victorian times had a population of 50,000 and was home to every type of criminal. This is a society in which people are viewed as commodities and everything has its price: 17-year-old Sue Trinder, brought up among the Borough's lowlifes, takes a job as a lady's maid as part of a plot to defraud an heiress and incarcerate her in an asylum. In the course of the novel's 550 pages, there's abduction, murder, sexual assault and a good deal of double-crossing.

Waters loves the novels of sensation of the 1860s – particularly The Woman in White, which Fingersmith echoes. Wilkie Collins tells us much about the moral and sexual climate of the time. "In his books there's a lot of domestic violence and a real interest in women's sexuality. I was taken with images of innocence and corruption."

But Fingersmith also draws on more melodramatic Gothic literature, particularly Uncle Silas by Sheridan Le Fanu. Waters's young heiress even shares her name (Maud) and age (17) with Le Fanu's damsel in distress. For each Maud, a horrible house, mouldering away under damp and creepers, is both home and jail.

There are three unexpected twists in the novel, which should not be given away here. Waters manages that partly by using a double narrative. In telling elements of the story twice, she shows what one person may filter out or not notice, what they may emphasise or interpret wrongly.

Waters wanted to make her characters "truly diabolical", she says. "But while I was chortling and thinking, 'This will be fun', I also found their predicaments painful." Inmates in Victorian madhouses, for instance, were forced to drink creosote, had leeches put to their heads and were beaten and plunged repeatedly into icy water. If they weren't deranged beforehand, they certainly were afterward. "There were great scandals in the 1860s where perfectly sane but troublesome women were incarcerated. It stopped after the Married Women's Property Act was passed, which meant women could retain their own wealth."

Private institutions were favoured for middle-class women. There, it wasn't so common to lock patients up or restrain them with straitjackets. But they remained confined because "they had their money taken from them and wouldn't even have a hat to go out in. They had no means of travelling away, and nowhere to go." Money, too, can be a kind of shackle. Inheritances were always tied up with conditions, and guardians could prove unscrupulous. Whom could a friendless orphan turn to?

Pornography figures largely and chillingly in Fingersmith. Porn was a thriving industry in the 19th century, and Waters refers to several books of the time. "I'm not trying to celebrate pornography, but I find it endlessly fascinating," she says: "the way it both confounds our sense of what the Victorians are like and so obviously sits alongside what we know about the exploitation of the period." Can women appropriate pornography for their own ends? The two girls in the novel can, but in a way that may surprise the reader.

As in the other novels, Fingersmith follows an intense relationship between two women. The writing is sensual. There are rustling taffetas and unlaced stays. Lips are "plump" and "pouting". A man peels back a girl's white kid glove and touches her palm with the tip of his tongue.

It's all as hypnotic as a dose of chloral, but Waters never overdoes it. Trust her – she's a doctor.

Sarah Waters: Biography

Born in 1966, Sarah Waters was brought up in Neyland, in Pembrokeshire. She attended Milford Haven Grammar School and read English at Kent University. She followed that with an MA at Lancaster University. After working in a bookshop and as a librarian, she did a PhD at Queen Mary and Westfield College, London, on lesbian historical fiction. She was teaching at the Open University when she began writing her first novel, Tipping the Velvet (Virago). It won a Betty Trask award and has now been adapted by Andrew Davies for BBC television. Her second novel, Affinity, won the Somerset Maugham award, and in 2000 she was the Sunday Times young writer of the year. In 2001 she was named as one of the 21 most talented writers under 35 in the Orange Futures promotion. Fingersmith will be published by Virago at the beginning of February. Sarah Waters lives in Brixton, south London.