Mathieu Kassovitz, young director of the dazzling and incendiary La Haine a couple of years back, acquits himself equally well in front of the cameras in this, his second film for his friend Jacques Audiard. He does not, he says, see himself as an actor, claiming instead only to accept parts for what they can teach him about his own film-making.

He is Albert Dehousse, an already over-imaginative lad who learned the power of deception from the stories told by his mother about his father's heroic wartime death. In actual fact he died falling off of a bar stool in the local hostelry. Later Albert marries, but, dissatisfied with his lot, runs away one night for Paris. There he meets 'the Captain' (Albert Dupontel), a charismatic and gay former member of the Resistance, and the fixer, Monsieur Jo (Francois Berleand). Under their tutelage he determines to couple tales of daring-do with the craft of salesmanship learned from his father-in-law: Albert Dehousse casts himself a role in the Resistance as a self-made hero. "The best lives," he says in old age, "are invented."

Audiard's film - and Jean-Francois Deniau's novel from which it's taken - reportedly caused something of a storm in France. A sly, witty, intelligent picture, it holds a mirror to a guilty history many would care to forget: Albert, for one, runs away the day he learns of his own mother's active collaboration.

There is little malice in Albert's recreation, however. Early deceptions are cleverly constructed to get out of paying his rent, but it's through a combination of cunning and compliant gullibility in his fellow citizens that he becomes more intrepid. When a Ministry car is sent he figures the game is up, only to find himself dressed with a steely reputation and, eventually, a Colonel's uniform as civilian adviser on propaganda in an occupied Germany. Albert Dehousse the coward thus becomes an almost Zelig-like figure, acquiring information and meticulously observed mannerisms to build the ever more audacious edifice that is Albert Dehousse, war hero; a little man's lies implying those of an entire nation.

The film, alluringly shot by Jean-Marc Fabre, intercuts 'interviews' with people who knew Albert at the time and, even more extraordinarily, in the intervening years, suggesting a post-war career of epic proportions. The veteran Jean-Louis Trintignant is his elderly self.

But as fascinating and funny as this is, Audiard elects to add yet more layers. We see apparent newsreel footage, occasional pixillation, and even the string quintet playing Alexandre Desplat's engaging score on screen. Most tellingly of all, Albert's publisher reads an extract from near the end of a novel which, in turn, escorts us back into the end of the film. Albert is a liar (and, paradoxically, a decent man) and Audiard wants us to go on to question how much he himself, as a film-maker, is equally the purveyor of a beguiling untruth.

It's this that really makes the picture. Audiard and Alain Le Henry took best screenplay at Cannes last year for this gripping, subtle, subtly political picture, and one is almost tempted too to read something sinister into the fact that Kassovitz and Anouk Grinberg (as Albert's lover) uncannily resemble younger incarnations of John Turturro and Juliette Binoche. It's that kind of a film. Highly recommended.