It seems hard to believe today that theatre could shake the political system of a continent. But as the Depression hit America, the jobless, the homeless, the exploited and degraded began to forge a mighty weapon to assert their right to justice and just reward, and theatre was that weapon. For a few short years, America was ablaze with such theatrical-inspired leftwing passion that the government had to call out their judicial marines to douse the fires - senator Martin Dies's House Un-American Activities Committee (HUAC). This was a dozen years before the infamous McCarthy era.

Tim Robbins's new film, Cradle Will Rock, is a recreation of one of the legendary moments of this period, when leftwing theatre took a spectacular stand against the growing censorship which was eventually to stifle the entire movement.

There had been radical theatre in the 20s, but this reflected no more than bohemianism and had no notion of propagating political doctrines. As theatre historian Joseph Krutch of Columbia University wrote in his "informal history", The American Drama in 1957: "If theatre looked with a jaundiced eye upon the rich it was more often to expose their vulgarity."

The Depression (which ran from 1929 virtually to the outbreak of the second world war) changed all that. By the mid-30s Uncle Sam was besieged by a startling proliferation of leftwing theatre, an activity which, for a time, was ironically totally government subsidised.

In July 1935, President Roosevelt added the Federal Theatre Project to his New Deal work relief agencies. Hallie Flanagan was appointed national director. Flanagan had produced plays at Harvard and Vassar, but had no experience of the commercial theatre. Her boss, Harry Hopkins, head of the national Works Progress Administration regarded this as a virtue. The intention was not profit, but to get theatre people back to work in the same way as bricklayers and plumbers. But Flanagan had been to Europe to study on a Guggenheim grant (a background later to be the target of the HUAC) and learned about modern theatre. She was given a $46m budget. Seats at the theatres would range from 10 cents to $1. Producers were paid about $200 a month; actors about $55.

The left was in ferment following the rise of Hitler and Mussolini and in 1935 they were presented with the most romantic liberal cause of the century - the Spanish civil war. The Communist party in America had craftily toned down its dogmatism to accommodate hitherto despised socialists and liberals in the Popular Front against fascism. All across America the workers - mostly strikers and the unemployed - began to preach revolt.

Flanagan had no objections. Thrashing around in there with the activists, salvationists and trades unionists were names which were to become legends in Hollywood: Orson Welles, John Houseman, Elia Kazan, Lee J Cobb - even Duke Ellington made a guest appearance. Hemingway briefly became an idol of the Communist party when he created the narrative for Joris Ivens's film, The Spanish Earth.

The first great agitprop play was Waiting for Lefty, written by 28-year-old Clifford Odets, then a member of the Communist party. It was set during the taxi-drivers' strike of 1934 and is essentially a series of turns in which taxi men deliver their stories of poverty, oppression and injustice and clamour for a world "free of fear and falsehood and craven servitude to stupidity and greed". As they wait for Lefty (a Godot of the 30s who never turns up) a taxi man called Agate - his name a play on the word "agitiate" - delivers a passionate speech: "These slick slobs stand here telling us about bogeymen. But the man who gave food to me in 1932, he called me comrade! The one who picked me up where I bled - he called me comrade too!" When the word comes that Lefty has been murdered it is Agate who gives "the birth cry of the 30s": "STRIKE!" "Louder," shouts Agate." "STRIKE! STRIKE! STRIKE!"

Perfidious Destiny must have been sniggering up her sleeve, as Agate was played by Elia Kazan, the future director of On the Waterfront and later reviled as the man who betrayed his Hollywood comrades to McCarthy. Waiting for Lefty was a triumph - a measure of the huge surge of emotion that had seized America whose industrialists - steel in particular - were, literally, making a killing, selling materials to Hitler and Mussolini while grinding the workers underfoot (a popular phrase at the time). Sensationally, Lefty invaded the commercial theatre, moving to Broadway for 78 performances. At one point, Odets wrote, it was playing simultaneously in 62 American cities.

Odets helped seduce the middle class to agitprop theatre. Some of the real-life taxi drivers were professional men reduced to hackney work to earn a living. One of Odets's characters is a former lab assistant who is fired for having refused to work on poison gas; another a physician dismissed for covert anti-semitic reasons.

A few weeks before Lefty emerged in 1934, Orson Welles had produced Panic, by Archibald MacLeish, a verse tragedy with chorale and chant, the chorus directed by Martha Graham. It went down a treat.

Here was the theatre flourishing in a climate of such eager, generous open-mindedness that there was room for neither aesthetic fastidiousness nor inverted snobbery. The theatre had something to say and it would say it in any form it needed. Odets put it succinctly: "We are living in a time when new artworks should shoot bullets."

One strand of the Federal Theatre Project was called the Federal Living Newspaper. The "newspaper" offered subjects such as Dirt, Liberty Deferred, Power and Poor Little Consumer, and - its most successful production - One Third of a Nation, which sensationally closes with a simulated fire in a tenement building.

Another knock-out success was the International Ladies' Garment Workers' racially integrated production of Pins and Needles. It ran for 1,108 performances, a landmark for a musical comedy exceeded only by Olsen and Johnson's Hellzapoppin'. Its cast were cutters, dressmakers, and knit goods workers from the ILGWU's locals. Its hit songs included the satirical It's Not Cricket to Picket, and Four Little Angels of Peace. (These latter were Hitler, Mussolini, an unnamed Japanese and, rather surprisingly, Britain's imperialist-inclined foreign secretary, Anthony Eden.)

Welles had already had a triumph with his Julius Caesar, in a blood-red setting. Along with Houseman, his policy at their Mercury Theatre was to produce classical plays "which have factual or emotional bearing on contemporary life". But the great leftwing theatre movement was now about to reach its apotheosis - and its demise.

In June 1937, a serious composer working in blues and swing, Marc Blitzstein, wrote what was essentially a musical cartoon called The Cradle Will Rock. Set in Steeltown, it featured a nasty steel mill owner and his family: Mr Mister, Mrs Mister, Brother Mister and Sister Mister. In those days, when you could be fired for not addressing your boss as "Mister", the characters' names alone were worth a gleeful chortle.

The theme is union organisation; the hero, Larry Foreman, plants onions (unions). During a police round-up of striking steel workers the Mister family are mistakenly thrown into jail. In the course of that night Mr Mister's corrupt control of education, the press and even the church is exposed in a series of satirical numbers.

Joseph Krutch wrote: "The very ferocity of the satire is remarkable, some of the lyrics are raffishly amusing and there is a savage, cumulative absurdity hard to describe." It ends with news that the workers of Steeltown are on the march. Our hero sings: " That's a storm that's going to last until/The final wind blows... and when the wind blows.../The cradle will rock. " This was an open threat of revolution.

The Federal Theatre fumbled the opportunity to put on the play and Welles and Houseman took over. But by now Flanagan herself was in the dock, deftly fielding questions from the Dies committee regarding her cultural formation, notably her admiration for a person named Christopher Marlowe. Representative Joe Starnes of Alabama demanded: "Is he a communist? Tell us who this Marlowe is so we can get the proper reference." Flanagan replied with a straight face: "Put in the record that he was the greatest dramatist in the period immediately preceding Shakespeare."

But scoring cultural points was about all Flanagan could do at this point. The American right was wresting back power from Roosevelt and won a cut of 30% in the budget of the Federal Theatre's New York projects. There was an immediate ban on staging any new plays before July 1, 1937. This was rightly interpreted as creeping censorship. The Cradle Will Rock was scheduled to open on June 16 and 14,000 advance bookings had already been sold. Flanagan pleaded in vain for a dispensation.

Now Welles came up against another barrier. Equity demanded that the actors had to receive permission from their employers, the Federal Theatre, to act for the Welles-Houseman company. This was not forthcoming. Blitzstein was not a union member, and Welles or Houseman had the brilliant idea of having him perform the whole thing sitting on stage, at his piano, just as he had done in the original workouts.

Now began feverish attempts by Welles and Houseman to find a venue. Welles assured the press and ardent public that the work would be performed and announced a rendezvous outside the closed theatre, although the National Guard barred the entrance. Howard da Silva (whose career was later destroyed by McCarthy) entertained the audience on the sidewalk while the search went on. At the last moment a theatre was found, the Venice, and the 22-year-old Welles led his followers 20 blocks to the new venue.

When Blitzstein began to perform many of the cast, in defiance of their union, rose one by one from their seats in the theatre and performed from there. It was a stupendous hit and from then on this was how the play was put on across America.

A year later the Federal Theatre project was shut down. "Because it put the fruit of its labour - the productions - before a mass audience, it brought down on itself the implacable hostility of conservative legislators of both parties," wrote Malcolm Goldstein in his 1974 book The Political Stage: American Drama and Theatre of the Great Depression.

The same year Welles went on to amuse himself, throwing America into a panic with his War of the Worlds radio broadcast - too realistically "reporting" an invasion from Mars. The reality to come was worse: Pearl Harbor. And the leftwing movement of America become submerged in bellicose patriotism.