Mr Big bounces back: Julian Schnabel's amazing journey from faded art star to film-maker extraordinaire

Painter, pyjama-wearer and legendary loudmouth, Julian Schnabel personified the New York art scene of the 1980s. Now, with 'The Diving Bell and the Butterfly', he has completed his reinvention as a film-maker to be reckoned with. He talks to Jonathan Romney about death, creativity and why he always comes up smelling of roses

On a May afternoon in the South of France, a large bearded man sitting in a hotel garden in rose silk pyjamas and monogrammed dressing-gown ponders his mortality. "I might get scared right before I die, for a minute or something, but I'm ready," he declares. "I go surfing in waves that are pretty big – you might get dragged under – I've done it since I was a teenager, it keeps me young. Maybe I don't look so young right now but I've been here too long. If you get dragged under the water, you don't come up for a while, believe me, you wonder – and for a guy that has claustrophobia, what the hell am I doing down here?"

The handful of journalists sitting around nod politely; they too may be wondering what the hell they're doing down here. This is not the average Cannes promotional interview, more a free-associating digression from someone who's not, strictly speaking, the average film-maker. A star of oils and canvas over three decades, Julian Schnabel has been behind a movie camera long enough now for it to be high time to drop the term "painter turned film-maker". Although in the film world his reputation still bears the taint of the energetic amateur, since its Cannes premiere last year, Schnabel's third feature, The Diving Bell and the Butterfly, has radically altered many people's view of his directing skills. It is, by any standards, an extraordinary work – accomplished, inventive, even visionary, and displaying a sensitivity no one might previously have associated with its larger-than-life maker.

The Diving Bell and the Butterfly is adapted from the book by Jean-Dominique Bauby, the editor of French Elle who, in 1995, suffered a stroke that left him with a rare condition called "locked-in syndrome": he remained fully conscious but almost entirely paralysed. Bauby's force of will led him to compose a poignant and bitterly witty memoir, dictated entirely by blinking, his eyelid being the only part of his body with which he was able to communicate. Published just two days before Bauby's death, the book became an international bestseller and a national glory in France – which may explain why, even though the film was made in French with a French cast and crew, Schnabel's aggressive approach to Bauby's minimalism found little favour with Gallic audiences and critics.

Elsewhere, however, Schnabel is consolidating his reputation as a film-maker to be reckoned with, giving his career a timely boost just when many in the art world have written him off as an anachronistic hangover of New York's 1980s boom years. It's clear the film's themes have got under Schnabel's skin. Asked whether Bauby's story has changed his own view of mortality, Schnabel tells a rambling anecdote about his father's death at the age of 92, and how he had given him a bath the night before he died but the water was too hot – "'Ow, you're burning my balls, Julie!'"

"I used to lie down with my dad in bed in Montauk [Long Island]," he recalls, "in my studio there, I'd lie down next to him and it was like a sleeping pill. You lie down next to this guy, you're so comfortable, you're out in a minute, and we'd wake up, and then, you know – he's not there any more. Now my son takes a nap with me, and I feel there's this large figure which is me now, and I'm next on the conveyor belt."

And Schnabel skates off in another direction, recalling an attendant of the Dalai Lama whom he met through Lou Reed, and it seems that this monk used to have panic attacks as a boy, and if he had panic attacks – "and he's supposed to be the eighth incarnation of some higher being" – then there's the chance of enlightenment for us all.

Schnabel continues in this vein until someone asks why he's wearing pyjamas, and he focuses. "My wife made these pyjamas. She has this store – everybody write down the address. She made the sheets and pyjamas that were in ' the movie. I built the store for her, it was based on this apothecary on [Calle] Obispo in Havana. She didn't really want to have a store and I said, 'What about that building?' She said, 'If you could build me a store that looks like that, then I will have one.' These are usually brighter but I had this nutty maid who washed it in a machine." He's still enthusiastically plugging his wife's New York shop while his publicist ushers in the next interview group.

It's hard to detach Julian Schnabel from a certain reputation for blowhard buffoonery. In the 1980s, as the blue-chip collectable star of the New York art scene, he projected himself as an abrasive bruiser, often photographed Brando-style in a vest, and shamelessly comparing himself to Picasso. Today, aged 56, goateed and comfortably padded, Schnabel comes across more as a genial bon viveur. But even sceptics are starting to admit he may have a fraction more in common with Orson Welles than just bluff garrulousness.

Schnabel has made three striking, stylistically unconventional films about outsider figures. The first, and least accomplished, was Basquiat (1996), about the late painter and the 1980s Manhattan art scene. For all its impressionistic brio, it was hard not to see the film partly as an artist's hobby project, especially since Schnabel considerably highlighted his own part in Basquiat's life, under cover of a sympathetic painter character played by Gary Oldman. The much more dramatically focused follow-up, Before Night Falls (2000), about the exiled gay Cuban poet Reinaldo Arenas, was hugely confident, yet still wayward in some of its eccentricities – notably Johnny Depp's dual role of a prison officer and a transvestite. But with The Diving Bell and the Butterfly, there's no question that Schnabel has at last yoked his intensities to a focused purpose. Working from Ronald Harwood's script, Schnabel contrives to take us inside the head of a paralysed man reconstructing the world through his mental images. The extraordinary French actor Mathieu Amalric, who plays Bauby, is kept largely invisible, while we see the world from between his eyelids.

When I meet Schnabel again in London a few months later, he looks less imperially imposing, the pyjamas replaced by more workaday plaid shirt, jeans and sneakers in shades of banana and toffee. He's considerably more succinct, too, and just a touch cautious: I suspect he's been given some refresher coaching on interview technique. I ask whether Schnabel saw Bauby's unusual situation as an opportunity to reinvent cinema's visual language. "I don't want to sound pretentious," he says. "I'm not saying I'm inventing a new visual palette, but I like to look at the corner of the room sometimes; I don't have any hierarchical notions about seeing a guy's face or watch or plaid shirt. When I make paintings, I like to make paintings of things I haven't seen. I make paintings where I take big white shapes and I paint them going off the left side."

His filming method, he says, didn't go down well with all members of his crew. "You tell people, 'I'm gonna screw my glasses on to the camera, or stick a nose on the camera and put latex over it with an eyelash and sew it up,' they think, how long can people look at something that's blurry on the edge? You're gonna make this commitment not to see your main character for 45 minutes? Yeah – and if it doesn't work, we're gonna have to do it another way."

All three of Schnabel's films are portraits of doomed, even tragic artists struggling with unusually challenging conditions: Reinaldo Arenas fled Cuba and killed himself in New York, having lived with Aids, while Jean-Michel Basquiat died of a drug overdose at 27. Given his own extravagant good fortune, you might not think Schnabel would identify that closely with his subjects, yet his films come across as intensely personal, to the degree that aspects of his own personality sometimes leak unexpectedly into their protagonists' lives. " I feel I know these people. Jean-Michel and I knew each other very well, he was very familiar to me and we went through the same things, and he died and I didn't. He always wanted to know what I thought. I remember looking at his work one day and thinking, 'I woulda done it like this.' He said, 'It's my version.' I thought that was very smart – you can't get away from making it your version of whatever it is. Sure, it's about Jean-Michel," Schnabel says of Basquiat, "but essentially..." And he heads off on a bizarre detour.

"I usually smell pretty good, I don't have a strong body odour. It's amazing, cos I'm a large guy, and I don't smell bad in general. So I'll say, 'Smell me,' and they'll go – sniff, sniff – and I never smell bad." Which is why – he finally explains – Basquiat in the film is always fragrant, even after a night sleeping rough. "Because I smell good," Schnabel continues. "But obviously things happen to me and I use myself as a guinea pig. I invent the character that I see in my head that's an amalgam of the things I'd like to be, or that I'd like them to be, or the faults that they should have."

Schnabel's lifestyle suggests the stuff of an airport novel. He has homes in New York, San Sebastian and Montauk: he recently caused ripples of mixed horror and admiration by converting his base in Manhattan's West Village into a 17-storey pink-red monolith named the Palazzo Chupi, containing condos sought after, reportedly, by the likes of Richard Gere. His has five children: three with Jacqueline, his Belgian first wife, and twin boys, now 13, with his second wife, Basque ex-model Olatz López Garmendia, she of the nightwear store (although Schnabel's pyjama habit predates their meeting). His tender regard for Olatz can be gauged by the fact that in Before Night Falls, he cast her as Arenas' mother, while in The Diving Bell..., she registers a warm presence as a physiotherapist that Bauby sees as one of his administering angels.

Born in Brooklyn in 1951, the youngest of three children, Schnabel moved with his family to Brownsville, Texas, in the mid-1960s. His father, a Czech immigrant, was a versatile entrepreneur: "He was in the meat business, the fur collar business, he sold 20,000 tons of barbed wire to places in Mexico, he had a coffeeshop in the Catskill Mountains. We moved to Texas because he went into the ropa usada business, which means used clothes." Although Jewish, Schnabel attended a Marist Brothers Catholic school – "it was the best school in Brownsville" – and then studied fine arts at the University of Houston, Texas. He had his first solo show in Houston in 1976, then, after the first of several New York stints as a restaurant cook, travelled around Europe, discovering Gaudi in Barcelona: the mosaics of Parc Güell would inspire the smashed-plates trademark of Schnabel's 1980s work.

Back in New York, Schnabel teamed up with gallerist Mary Boone, who was emerging as one of the taste-makers of the new downtown art scene. Schnabel's reputation was made in a 1981 show that – as Jerome Charyn put it in his book on New York, Metropolis – "created a bonfire over Manhattan". Schnabel's paintings were massive, muscular explosions of paint and improbable mixed media: most famously the crockery, but also antlers, ponyskin, velvet. His canvases echoed Jackson Pollock's effusive muscularity and Rauschenberg's iconographic eclecticism, teeming with imagery culled from a vast junk shop of myth and cultural allusion: angels, saints, African heads, Caravaggio, Artaud, you name it...

A penchant for deliriously oblique titles – Journey of a Lost Tooth in India, Death of an Ant Near a Powerplant in the Country, Christ Entering Zihuatanejo – added to the mystique. The art world lapped it up: enthusiasts compared him not just to Pollock but to Walt Whitman; his bronze sculptures, oozed one critic, "seemed to ring in some new and disturbing Age of the Nibelungs". In the early 1980s, Schnabel established himself as the token romantic muscle man for a bloodless, moneyed-up decade: as Charyn breathlessly puts it, "[he'd] become that obscure object of desire: primitive and hot, like a hulking genital. King Kong."

But not everyone was impressed: his reputation took a bruising when Robert Hughes declared in The New Republic in 1987: "Schnabel's work is to painting what Stallone's is to acting – a lurching display of oily pectorals – except that Schnabel makes bigger public claims for himself." In his mock-heroic poetic lampoon "The SoHoiad", Hughes further jibed, "And now the hybrid child of Hubris comes – / JULIAN SNORKEL, with his ten fat thumbs!" It wasn't just the prices he commanded –$1m at his peak – that came to identify Schnabel with the excesses of the 1980s, but also his regal style, the pyjamas and monogrammed slippers, and the self-promotion. As early as 1987, he published a voluminous illustrated memoir; he even released an album of country-styled ballads, singing like a hungover minotaur on Springsteen tribute night.

Two decades on, Schnabel's art-world reputation has declined. Reviewing his 2003 Edinburgh show, Guardian critic Jonathan Jones saw him as embodying the impasse of American modern art: "Everything Schnabel does has only one meaning: it's over." Two years later, a New York Times review concluded with what seemed to be the consensus: "In the future, Mr Schnabel... will make his most memorable work on film."

He still has faithful admirers: among others, critic Matthew Collings is on record hailing him as "a seriously great painter". And his works can still fetch several hundred thousand dollars a throw. The fact remains, however, that Schnabel has managed to thrive where many of his contemporaries have faltered. Several of his art-world peers have tried their hand at feature films (Robert Longo, David Salle, Cindy Sherman), but only Schnabel has had more than one crack, and come up smelling of roses. Why, I ask, does he think that is? "Not allowed to say," he grins in mock-coyness. "Not on tape." His discretion only goes so far, though.

He never had much in common with his art-world contemporaries, he says. Longo and Sherman, he points out, were from photographic backgrounds – "I'm a painter, and they're not. In fact, none of them are, really – they might have made paintings, but there's a different kind of relationship to the material." He and painter David Salle, he says, "were sort of seen as this couple, like the Rauschenberg and Johns of the 1980s, but the truth of the matter was..." He pauses. Seemingly it's the thought of being characterised as a centaur among eggheads that irks him. "The idea of doing something physical might preclude the idea of something being intellectual – but they're not mutually exclusive."

Schnabel still considers himself a painter above all, and a hot ticket at that: he points out how busy he's been over the past year, with major shows in Rome, San Sebastian and Germany. For the latter, in the castle at Derneburg formerly owned by Georg Baselitz, he's quick to point out that "during Dokumenta and the Münster sculpture exhibition, there were all these people, like the trustees from Tate Modern and the Royal Academy and the Guggenheim, there were these buses going around – they saw that exhibition". Meanwhile, Schnabel has diversified into lifestyle: as well as the Palazzo Chupi, he has designed for Ian Schrager's lavish new Gramercy Park Hotel. He also designed and directed Lou Reed's recent live performances of the Berlin album, and turned the result into a feature film, to be released later this year.

It may sound chaotic and dilettantish, this omnivorous existence. But whatever he does, Schnabel insists, he comes to it as a painter. And there's no game plan. "People tend to look at things like careers; I don't see it like that. I just make things. I maybe have a plan that I want to tell or engage in something, but until I make it, it doesn't exist. When I was younger," Schnabel recalls, "I'd walk around taking notes of what I was going to do – listing ideas because these things are like mussels that haven't glommed on to a rock yet. It informs who you are, and then things come out and you don't need to take notes, you just start seeing everything and you go, 'OK – that's a painting, that's a painting..." He leans back conclusively. "And you're just breathing paintings."

'The Diving Bell and the Butterfly' is released on 8 February. 'Lou Reed's Berlin' is released later this year