There are political Hamlets and personal Hamlets. Kelly Hunter's condensed version keeps it in the family. She boils the play right down to its essential units - three parents, three children – and, in only 100 minutes, turns in a taut, tense psychological thriller. Even if it ultimately tips into melodrama, as its domestic drama ends in death upon death, this is espresso shot Shakespeare: sharp, dark and intense.

Staged on a single black leather sofa, Hunter's edit becomes "a document in madness." Mark Arends is a cerebral and righteous young Hamlet; a studious son who cannot cope with his mother's new relationship. He misses her wedding to pore over old family photographs and when Katy Stephens and Tom Mannion return like tipsy teenagers – she, slumped on the floor like a sloshed prom queen; him, swigging from a hip flask – it's too much to bear. They squeeze him in on the sofa – an uncomfortable parody of a happy family portrait – only for him to spit back accusations about "incestuous sheets."

Arends' Hamlet seems to blow a casket. Like Jonathan Pryce's Hamlet, his father's ghost comes from within, but here it looks less like possession and more like psychosis. Clutching a hand to his forehead, Arends doubles up in pain, writhing on the sofa and vomiting up his dad's voice. This is a Hamlet who seems to spend long nights sitting awake, soliloquising; a paranoid obsessive, who forces his family into wink murder to try and get at the truth. I only wish Hunter had had the courage of her convictions: if Hamlet's truly delusional, Claudius can be innocent, yet Mannion confesses his crime like any other. In madness, Hamlet hits on the truth.

The alternative would make Arends' unravelling all the more alarming, especially as he settles into a cold-blooded lucidity, scrutinising Yorick's skull like he's made sense of the world. He stalks the family house with a kitchen knife outstretched: a lone terrorist gone postal in his own home. It's here Hunter's coiled and careful approach pays dividends, and the situation seems genuinely dangerous and unpredictable. For once it seems possible that Hamlet might murder his mother – or, indeed, any other member of his family – and Stephens combines the terror of a hostage situation with the horror of a mother aghast. Their encounter culminates in a bloody, incestuous kiss; Arends channelling his father in more ways than one.

Hamlet's not alone in madness, of course, and by keeping Finlay Cormack's Laertes at home (he steps in for Rosencrantz and Guildenstern), Hunter shows a pattern: one generation driven off-course by another. Francesca Zoutewelle is almost pressure-cooked as Ophelia. She crawls out of the arras covered in her father's blood, never to be sane again, and, in turn, tips her brother over the edge.

Despite all this insanity, the ending goes off the cliff. Without the fate of a nation resting on events at Elsinore, the final fracas – here, bodies stacking up at a family funeral – looks well OTT, and it raises questions about whether Hunter is examining psychosis or exploiting its imagery for the sake of quick thrills.

Hamlet runs at the Trafalgar Studios until 31 December.