Cross-dressing has shaken off its dowdy image and gained a new lease of life.

The chances of finding a drag queen in a field in Somerset are small. The chances of finding a whole crowd of them, dancing to pumping Seventies disco in a mock-derelict building, verge on the microscopic. "Believe me," drawls the drag queen Gateau Chocolat, resplendent in a bejewelled gold lamé headdress, "camping is really not my thing." Nevertheless, miracles do happen, especially at Glastonbury.

"I wanted to create this bombed-out, post-apocalyptic, smoking, down-and-out, dark, seedy, homo, New York alleyway place," says Gideon Berger, who conceived the idea of the New York City Downlow, the world's first gay travelling disco and Glastonbury's first official gay presence. Downlow has an appeal that goes way beyond the gay audience; Berger emphasises that it is about dressing up and mucking in, regardless of sexuality. "It's a lot bigger than just the homo thing," he says.

Jamie Hillard, who programmes the music for Downlow and London's Horse Meat Disco club night, agrees. "There was a brouhaha about there being a gay tent at Glastonbury, with people saying we didn't need this representation. But it's strange that at a festival of contemporary arts, with 180,000 people in one area, there wasn't yet some kind of gay space. So we created one, but it is very inclusive - anybody can be part of it."

Over the weekend of 22-24 June, a series of drag-inspired performance artists served up a menu of Gay Bingo, A Night of a Thousand Shirlies (in tribute to la Bassey, who was performing at the festival) and a re-enactment of the Stonewall riots, all to the sound of original disco. On the Saturday night, the Legendary House of Horse Meat Vogue Ball was convened, in the Vogue Ball tradition: an event where contestants dressed in drag compete in set categories, parading their outfits and attitude in front of the audience and panel of judges. Once, in the disco era, such events were the preserve of New York's black gay subculture, as chronicled in the cult documentary Paris Is Burning. At Glastonbury there were, of course, festival themes: Best Look In a Sleeping Bag, and Trustafarian Realness ("She may be rich but she smells! Exude!").

Downlow's organisers consider late-Seventies New York to be the heyday of gay culture, in an era before Aids and rampant commercialism made their mark. "I'm not saying we were representative of all gay culture, but it was a bloody good show," says Hillard. The crowd lapped it up, every single man and woman wearing a false moustache paid for on the door. ("There was absolutely no door policy," says Berger, "except 'You've got to have a moustache on'.")

NYC Downlow is just one of many signs that Britain's drag scene is undergoing a renaissance. In London, Jonny Woo and his colleagues have been developing their own style of alternative drag performance for several years, mainly at east London venues such as the restaurant and cabaret Bistrotheque. Their most successful show - A Night of a Thousand Jay Astons, a parody inspired by Bucks Fizz - is now transferring to the West End. Woo's shows are expertly silly but perfectly crafted, cabaret at its most modern. They are less orthodox in style and content than the old Danny La Rue-style performance, and have become not just popular but also fashionable, featuring in the style bibles i-D and Pop.

Many of the capital's best club nights now have a transvestite at the helm. The door at Boombox, the fashionista haven at the Hoxton Bar and Grill, is controlled by the statuesque, couture-sporting James/Jeanette. Jodie Harsh, who is all plumped lips and towering wigs, runs nights in Soho and Shoreditch for clients including Alexander McQueen. Drag has lost its sad and seedy image to become something respected - if not, thankfully, respectable. "I was kind of against drag, as a lot of people see it as quite dowdy," says Woo. He was inspired by the New York drag scene in the early 2000s, finding it "much more joyous, much more up", and set about re-creating it back home. "My approach is to have everybody as part of the experience. I've got to be having as much fun as you are - or else my performance would be a lie!"

Woo insists that he and his friends have no interest in pretending to be women. "It's not so much that we want to become a different person - it's more of a heightened state." His classic garb is heels, make-up, skirt and beard, while Le Gateau Chocolat, otherwise known as George, proudly sports a hairy chest and legs.

"Our performances try to make people think outside the box," he says. "I did a show once and before I went on stage, another performer asked me: 'Aren't you going to shave your chest? Or your beard? Or your legs? How can you claim to do drag?' I turned around and asked, 'Who died and made you Drag God?' For me, it's about mixing it up and creating something new, about being as real as possible."

And Jonny Woo says: "That idea of the bitchy drag queen who attacks his audience, which is a staple of the genre, is not what we do. We're here to spread the love!"

Drag nights have sprung up to cater for many different crowds, gay and mixed. Woo's Tranny Talent events, where visitors show off their lip-synching skills, are what he calls his "gayest" night ("and I acknowledge that - I try to keep it really queer"). Gay Bingo, despite the name, attracts a mixed, well-bred crowd. "It's good for me to have something to look at on stage," sighs Woo. For Jodie Harsh, a mixed crowd is essential. "I don't like the whole segregated thing. A lot of gay clubs are really boring, because they're only full of men."

Drag should not be conflated with gay culture: not all drag performers are homosexual, and clearly not all homosexuals are drag performers. Nevertheless, the two have much shared history, which is sometimes overlooked on the wider gay scene. At a recent show in Bistrotheque, the performer Lavinia Co-op - a veteran of the scene, at 56 - bemoaned how some gay bars now have signs reading, "No drunks, no dogs, no drags." Co-op's character harks back to the Seventies, when drag queens in New York were key to the gay liberation movement, after fighting the police in the Stonewall riots of 1969. Woo is acutely conscious of that history.

"What we are doing is so relevant to where Lavinia has come from," he says. "The Downlow is a testament to how various groups on the alternative gay scene have come together to create something unique."

NYC Downlow will be part of the Lovebox Weekender festival at Victoria Park, London E9, on 21 and 22 July. For more information log on to: http://www.loveboxweekender.com

This article first appeared in the 23 July 2007 issue of the New Statesman, Pink Planet