The presence of a “theatre stage” at a music festival does not inspire confidence: far from being hotbeds of dramatic talent, they tend to attract swarms of gurning stilt-walkers and nipple-tasselled wannabe Dita Von Teeses. The quality, groundbreaking work of the Royal Court, the National Theatre and the RSC feels a million miles away - and it probably is.

But there's one music festival this summer where all three of those national theatrical treasures are pitching up. The third year of the Latitude Festival in Suffolk boasts a line-up that includes not only major-league music acts such as Franz Ferdinand, Interpol and Martha Wainwright, but a 1,000-capacity theatre staging new work from some of the country's best playwrights and companies, and a “floating” lakeside dance stage showing pieces from the UK's foremost contemporary dance venue, Sadler's Wells.

When the idea of a cross- cultural arts festival was first hatched, Tania Harrison, Latitude's arts programmer, immediately contacted the Royal Court, “my favourite theatre for edgy, groundbreaking work”. The response was enthusiastic, but Diane Borger, the Court's theatre manager, realised that a festival environment would present certain challenges: “We knew that the pieces needed to be grabby and robust, that there should be moments where people could leave, or enter and still pick up the plot.” The Court's Angry Now plays fitted the bill: 12 short, sharp tales of assault and indifference.

Angry worked - and so did funny. Joe Penhall, the award-winning writer of Some Voices and Blue/Orange, was asked to write a piece for the Court's return to Latitude in 2007. Penhall's Common People was a Cool Britannia-era encounter between a rock star and a politician, and the writing of it was very much shaped by the venue: “I thought if the characters were easy to grasp and immediately likeable it would help,” he recalls. “That means funny. I think it's essential to be at least a little bit funny for a festival. Don't ruin the vibe.”

In the same year, Nabokov Theatre presented Joel Horwood's Is Everyone OK?, a twisted rom-com about two crazed office workers. Horwood, 27, had the audience squarely in his sights: “I knew if I was a punter, the only thing I'd stop dancing for would have to be funny and kind of about me. I thought about the people that might want to cut loose for a weekend in a tent. People who probably spend most of the summer in an office and are slightly confused by it all. People a bit like me.”

Even with the right material, though, could theatre really survive at a rock festival? George Perrin, co-founder of Nabokov, who programmed nine hours of work for the first Latitude in 2006, recalls the first-time nerves: “We thought, ‘Why would anybody come to see theatre at a music festival when the bars are open and there are 101 other things to do?' But they loved it, and the theatre tent was constantly full.”

The idea behind Latitude chimed with Perrin's reasons for founding Nabokov in 2001. Convinced that he could win over non-theatregoers, Perrin hired a room at Sheffield University union and put on an evening of new short plays. The work was bold and satirical, people could drink and there was a DJ to round off the night. The reaction proved Perrin's point: bring theatre out of the theatre and a new audience gathers around.

In exactly this way, Harrison is convinced that every year Latitude seduces more theatre virgins. As the number of visitors grows (from 12,000 in 2006 to 25,000 in 2008), she is determined to up her game, and companies are jumping at the chance to take part. This year the Royal Court and Paines Plough present Mark Ravenhill's war-themed Shoot/Get Treasure/Repeat cycle, while the Bush Theatre are soliciting real-life break-up tales for a show entitled 50 Ways to Leave Your Lover (somebody has sent in a teddy bear which says, when squeezed, “You're dumped; I want my CDs back”). The National is bringing a new play by Abi Morgan, the writer of Sex Traffic, and the RSC presents a series of “mini epics”. Nabokov returns with Che Walker's high- octane romance Crazy Love, performed by Paines Plough.

But perhaps the most striking addition this year is the dance programme. “It's the one artform that people will have been to see the least,” Harrison says, “but it's perfectly suited to a music festival.” Emma Gladstone, producer at Sadler's Wells, has assembled a broad triple-bill: hip-hop from Boy Blue, classical Indian kathak dance from Gauri Sharma Tripathi, and “super whizzy modern stuff” from Wayne McGregor's Random Dance. Having seen poorly staged dance at festivals before, Gladstone was keen for Latitude to be an exception: hence the timing, at sunset, and the stage, which will jut out over the lake: “It will look like dancing on water - the spectacle will be extraordinary. I just hope nobody falls in...”

Although Latitude is still unique among music festivals, it is just the tip of the iceberg for theatre and dance companies: they are all busy dragging their work out of its traditional boxes. Next year a Sadler's Wells collaboration with the American choreographer William Forsythe will bring performance installations to spaces round London. Nabokov has just held its first Arts Club in a Victorian warehouse in Shoreditch, and last week the Royal Court brought its shopfloor-set play Oxford Street to the Elephant and Castle shopping centre.

Ultimately, as Perrin says, taking performances to places “where theatre rules don't apply” is exciting for everyone: “When I go into a theatre I carry with me a weight of expectation, and I'm positioned to receive the work in a certain way. Anything you can do to shift that expectation or throw it off balance is a good thing.”

On the street, in the shops, on a night out, in a field in Suffolk: if you won't come to the theatre, increasingly the theatre will come to you.

Latitude Festival (www.latitudefestival.co.uk, 0871 2310821) July 17-20

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