The early 1970s. The virginal Bess (Emily Watson) marries oil-rigger Jan (Stellan Skarsgard) in her remote north-west Scots Presbyterian community. The following few days are blissful, but when he returns to the rig her life becomes unbearable. Only Dodo (Katrin Cartlidge), her best friend and late brother's widow, understands enough to help.

But for solace the devout Bess would more turn to her private intercourse with God as anyone around her, begging that her husband be returned. Almost immediately Jan is helicoptered in after suffering a terrible accident out at sea. Realising the hopelessness of his condition, he strives to save his new wife from herself by telling her that she should seek out other men and, by describing what happens, will aid his recovery. But she takes him literally and believes that only through having sex with strangers can she compel his deliverance. Her convictions lead the couple to a devastating end.

The debuting Watson is astonishing, her performance imbued with a raw, naked debasement equal only to Keitel's Bad Lieutenant. The previously sectioned Bess is a woman given everything only to see it all abruptly taken away again and Watson plays her perilously close to the edge, from absolute joy to howling despair, projecting so much through wide, desperate eyes. The soulless sexual encounters are among some of the most harrowing you will ever see. Von Trier's loss - Helena Bonham Carter walked at the eleventh hour - is his picture's undoubted gain.

Spurred by Watson the remaining cast perform magnificently, especially Skarsgard, who has to do so much flat on his back. Cartlidge's plainly decent Dodo, trapped between love for Bess and a man she doesn't trust, affirms her position as one of our finest actress. Her final speech is outstanding in its very inarticulacy. Others, like Adrian Rawlins' sympathetic doctor, Jean-Marc Barr as Jan's best friend, and Sandra Voe as Bess' mother, are equally good.

The director has recruited Robby Muller - Wenders' renown cinematographer who recently shot Jarmusch's Dead Man - to capture all of this and the effect is striking. The huge Panavision images were transferred to video and back again, advancing a suggestive, unsettling sepia, while Muller's camera anxiously pursues faces in close-up, occasionally even losing focus. Loach and Cassavetes are cited, but more than realist Von Trier's picture is almost extrasensory in its bleakness.

The film is divided into eight chapters, each preceded by Per Kirkeby's beautiful computer generated title cards and accompanied by a song - Python Lee Jackson, Mott The Hoople, Procol Harum - to suggest coming events. It is a wonderful device that furnishes the film with a much needed punctuation. The last, in which an impossibly verdant rural vista is juxtaposed with David Bowie's 'Life On Mars', is shattering.

And yet paradoxically this magisterial interlude ushers in the film's final, fatal flaw. Had Von Trier's screenplay quit while it was ahead, Breaking The Waves could have been a masterpiece. Pulling out even five minutes early would leave it only slightly overstated. As it stands, however, he pushes for a miraculous coda and ends on a shudderingly ham-fisted final shot. It's the kind of thing Michael Powell could have pulled off, but, for all Von Trier's increasing maturity, the abrupt switch from ambiguity literally rings hollow.

To see Breaking The Waves and to leave after the Bowie would be to see a piece of exceptional, all too human cinema. Instead the film dares to shoot for transcendence and hits absurdity - the only target on which Von Trier's crew miss the bull's-eye. For the mesmerising remainder we can almost forgive them.