Roll up, roll up, ladies and gentlemen, for the most shocking and thrilling show of the autumn season! We bring you scandal! We bring you romance! We bring you costume-swapping drama! We bring you a tale of rags to riches!

And that's just a summary of the life of Sarah Waters, author of Tipping the Velvet. The three-part BBC2 series based on her novel, which begins on Wednesday, is equally dramatic: a Victorian oyster girl from Whitstable falls in love with a music-hall male impersonator and finds fame and misfortune on the London stage. Our smart-suited, bowler-hatted heroine then becomes by turns a rent "boy", a rich Sapphist's housepet, and a cross-dressing socialist worker.

Scripted by Andrew Davies, who previously adapted Pride and Prejudice, Tipping the Velvet is a lush, delightful and fearless production; a mini Moulin Rouge. But it has its own inbuilt sideshow - already the Whitehousian stuffies are in a tizzy of disgust. Headlines so far include: "Beeb's Gay Sex Shock" (Mirror), "A Sizzling Lesbo Costume Drama" (Star), "Graphic SapphicI a scene involving a phallus-like contraption the size of a hat stand" and "BBC Faces Obscenity Row" (Mail). All this long before the public has viewed a single episode.

Never mind that this year Waters has made it to the shortlist for both the Orange and Booker Prizes - even in the 21st century, literature does not immediately license lesbotic lust, especially at prime time. You might imagine we'd be used to this, years after the televising of Jeanette Winterson's Oranges Are Not the Only Fruit, and months after that girly kiss on Big Brother. Davies thinks not: "Tipping will be very controversial," he says, and there is that salon scene where the heroine, played by Rachael Stirling, is naked, painted gold from head to foot, and wearing a not-insubstantial gold dildo.

"Maybe no one will be bothered," says Waters hopefully, from the safety of an organic pub in London's Hackney. It seems curious that such a small, blonde, neatly formed, quietly spoken person should contain such vast, dark, rollicking books. "I thought, the BBC will do it but they'll tone it down. But apparently they've gone for the whole package. I've seen the rushes - that will be a bit of a first, won't it, for TV?"

Waters nibbles some bruschetta in a hamsterish manner and adds: "There's a simple point I don't think about any more - that it's a bit startling for people to see women making love in Victorian times, when they're more used to heterosexual period drama in corsets."

When Waters was at London University writing her PhD on the history of lesbian and gay literature, she became interested both in the lesbian stories within Victorian pornography, and the male impersonators in the music halls of the roaring Nineties.

The women wore exquisitely cut linen suits with waistcoats, or toppers and tails, and had short, sleek hair, and sang those Burlington Bertie-type songs. "It was part of mainstream entertainment. I sometimes go to postcard fairs, and there are stylish photographs of Vesta Tilley and other male impersonators with hats and canes. It's all lost now; a part of lesbian culture that never crossed over to the mainstream in the way drag queens did. You'd never get a drag king presenting Blankety Blank."

Waters' novels, however, cross seamlessly into the mainstream. It would be rude to call them chick-on-chick lit, because they have higher ambitions: Dickensian or Gothic pastiche, serious attention to historical accuracy, and gripping literary style. Her Gothic blockbuster Fingersmith is up for the Booker, but many feel she was robbed of the Orange Prize for the same book earlier this year.

The film rights have been sold both to Fingersmith and to her second novel, Affinity, a black tale of spiritualism set in Millbank women's prison in the late 19th century, which won the Somerset Maugham Award.Despite this success, at 36 Waters is "only beginning to feel like a proper novelist". It is odd how women writers often express such modesty, while most men embarking on their fourth novel will happily declare their genius. Yet Waters took her writing deadly seriously from the start. After her PhD, she spent a year writing Tipping, revealing an underworld only hinted at in Victorian literature. "I was claiming unemployment benefit, and at that time it was getting trickier and trickier to stay unemployed. I did sort of look for jobs, because it was a great leap into the dark doing a novel."

At the end of the year, she sent out the treasured manuscript of Tipping, and got ten rejections from agents and publishers. "I was totally clueless. I was sending it out without an agent - "Dear Penguin Editor, this is my book" - and it was coming straight back. It's totally disheartening. You put in a stamped addressed envelope and this letter comes back with your own writing on it, and you know instantly what it is. It felt like it lasted for ever, but it was only nine months."

Nine months of rejection, and she kept going? "Friends were reading it and really enjoying it. But I thought I'd keep going until I exhausted all possibilities. I couldn't have been that disheartened, because I was already starting on the next novel." While Waters thought she might eventually be published "by some obscure women's press somewhere in America", in fact, Virago came to the rescue.

The initial reviews of Tipping were good; word of mouth was even better for sales. "I wrote it for me and my lesbian London friends, and I see why it appeals to us, but what amazes me is the wideness of the appeal," says Waters. "I do get straight women and straight men finding something they can identify with." Or as A. N. Wilson said: "Such a brilliant writer. Her readers would believe anything she told them."

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