When I arrived at Cai Dai, a beautiful 19th-century dower house in Denbigh, North Wales, the first person to shake my hand was a beaming boy bearing an axe. 'Great friend of Ronnie Kray,' said the estate owner, Sparrow Harrison. 'He was invited to his birthday party - writes to him all the time.'

Cai Dai ('David's Field') abuts the largest psychiatric hospital in Wales. As he was growing up there, Sparrow became used to patients wandering in to have a cup of coffee and offering to help with garage work or on the land. 'But I couldn't understand why people were coming here to shovel dirt for nothing,' he says. 'Then I realised that treating them as normal people gave them confidence.'

So 18 months ago, Sparrow, who by now had inherited the house from his mother, retreated to a few back rooms and handed the grounds (including 45 acres of woodland and a stream) and house (antique furniture, stern portraits, candelabras) over to the local schizophrenics and manic-depressives. And soon they were joined by assorted ex-prisoners and long-term unemployed people.

'There isn't much point in life unless one can do something for others,' says Sparrow, 'particularly people living on the edge.'

Gradually he has developed the property to include a classic car museum, featuring a Cadillac once driven by Diana Dors and the lorry used for the Great Train Robbery getaway (complete with hidden trapdoor to hide the loot), a rock memorabilia museum and a rare-breeds farm.

Now the idea is to turn Cai Dai into a mini-tourist centre, with nature trail, moth garden and market garden - all maintained by an ever-changing population, who need to regain their self-respect by doing real jobs rather than languishing in day centres and popping pills doled out by professional carers.

There are no rules, except to 'try not to fall out with anyone, and if you do, to keep it friendly', according to one manic-depressive resident.

The one trained worker, Jane Wash, an occupational therapist, lives on site with her boyfriend, a schizophrenic. But more than anything, everyone involved in the project agrees, they would benefit from an overall project manager - so appeals for help in employing one are being sent out to major trusts.

In the huge farmhouse kitchen I was introduced to Big Pete - 18 years old, 18 stone and 6ft 6in - who had just risen from his bed in the Chinese Room. He had been thoroughly abused by his family until, at the age of 14, he beat up his stepfather and was sent to a psychiatric institution. Now he is off to repair a fence down by the stream, before cleaning windows.

In walks Pam, to make a cup of tea. Since coming to Cai Dai, she has not cut herself, neither has she made any more suicide attempts.

Then Morag, 4ft tall and deemed unemployable by her social worker a year ago, comes through the door to wash and tidy up. Since working here, she has secured a cleaning job in Denbigh. 'Cai Dai,' she sighs, 'is like a second home to me.'

Outside, groups of men are beavering away. Some are on simple job placements, some on social skills courses. Many of them have histories that would make a visitor's hair stand on end.

'The problem,' Jane says, 'is that when psychiatric hospitals release their patients into the community, there is usually nowhere to go except back to their families, if they're lucky, or a bedsit and a day centre, where they paint pictures, play dominoes or pool, have coffee and attend appointments with their psychologists, psychiatrists or social workers.

'Once a week they're given their injections. They turn into professional patients, and the meaning of their lives is only to give meaning to those who care for them.

'A big psychiatric hospital is a great place to lose your skills, too. 'Want a pill?' they'll say, but never 'Want a job?' If I had to live like that, I'd run like hell.

'Here at Cai Dai, you get people who do jobs for you brilliantly. Here the point of their lives is to be really useful and to be genuinely needed.'

'It's different being surrounded by people who really listen and care,' says one depressive who had been unemployed for two years, 'rather than by people who are being paid to 'understand'.'

Most of the people, who work either with Jane on outside work, with Sparrow on museum maintenance, or with other skilled workers, come in from outside, but some live in the few mobile homes scattered around the property, some in a couple of flats, and some have rooms in the house. And now, a cottage in the grounds is being adapted for more residents.

Despite Sparrow's protestations that he has nothing to do with the success of the project - that it is the people themselves, or the beauty of the place, that works the magic - there is no question that his eccentric personality is a vital ingredient of what makes Cai Dai work.

This grandson of two generals - he was going to be called Robin, 'but my sister said I looked more like a sparrow' - was cursed with a severe stammer. 'It made life at school utter hell,' he says, 'and I could never even go into a shop and ask for anything.

'It's partly why I ended up doing this, I think. I relate to people who can't relate to others. Like mental illness, a stammer really does humble you. When I left school, my only qualifications were two O-levels, so I set up the original Association for Stammerers. Then I went into the garage business.'

Again partly to compensate for his stammer, he took up boxing. He is still a Welsh Amateur Boxing Association coach, and 'once knocked out the twice light heavyweight champion of Wales'.

Sparrow, now 55, says he likes the company of women so much that he never thought he would be very good at marriage. But his curious mixture of acute sensitivity and physical courage is just what is needed when faced with characters who are often touchy and occasionally violent.

'Of course, I've been threatened quite a few times,' he says. 'But I've never wanted to ban knives or matches, as you can see. It would make it so institutional. Aggro is something you can deal with when you're expecting it, and you understand the reasons why - and if you understand, it's worth bearing with.

'Nearly always these are really nice, decent people at heart. They just have a problem.

'You come into the world with nothing and go out with nothing. If you inherit something nice, you ought to use it.'

The names of members of the Cai Dai community have been changed. For more information about the Cai Dai Trust, telephone 0745 812107.

(Photographs omitted)