English National Opera and the Young Vic have again come up trumps with their third annual collaboration, a beautifully-realised production of Hans Werner Henze’s Elegy for Young Lovers.

Actors sometimes become great directors and Fiona Shaw makes a strong bid, aided by Tom Pye’s stunning designs and projections, sparingly-used and sometimes surprising, by Lynette Wallworth. The set fractures act by act and an astonishing coup de thèâtre sees time melting before our eyes then coming to a crashing end.

The opera dates from 1961, around the time of Henze's Heinrich von Kleist-based Der Prinz von Homburg, also given a brilliant performance by ENO some dozen years ago. From an early stage in his prolific opera career, it draws on a number of musical influences including Britten, Berg and Stravinsky, while sounding uniquely Henze.

W H Auden and Chester Kallman are better known for their work on Stravinsky’s The Rake’s Progress but they produced a tighter and more dramatically acute book for Henze. Set in the Austrian Alps in 1910, it revolves around a bonkers, egomaniacal poet, Gregor Mittenhofer, based in part on Auden’s long-term nemesis W B Yeats. Played with relish by the fine acting singer Stephen Page, the bear-fixated tyrant lurches unpredictably, damaging all in his path, amidst brief moments of lucidity.

Auden and Kallman’s libretto seems full of literary allusions, emphasised by some of Shaw’s choices. Jennifer Rhys-Davies’ Hilda Mack, sitting waiting for the return of the husband who disappeared into the mountains 40 years before, is a Miss Havisham, helplessly hanging on to hope before blossoming in the second act into a stratospheric Lady Bracknell. There’s a hawk-like Mrs Danvers, who lurks throughout and something of late Ibsen in the icebound symbolism and the perishing of the young lovers in a mountain blizzard. It’s a rich mix.

The work is delicately scored for 20 instruments, with glorious contributions from mandolin, guitar and harp and a host of percussion. Pounding Stravinskian syncopations alternate with gentle lyricism and conductor Stefan Blunier leads the ENO Orchestra in an exquisitely precise performance.

Shaw has a firm grip on the drama from the word go, with a frantic and often funny first act and great pacing throughout. There’s a bracing physicality to the performances. The uptight Countess Carolina, played superbly by Lucy Schaufer, puts duty over health by slicing open a letter with a knife while having her pulse taken, just one of a number of insightful details that pepper the direction.

The remaining performances – William Robert Allenby as Dr Reischmann, Robert Murray and Kate Valentine as the lovers – are uniformly excellent. Shaw imports one of her National Theatre colleagues Stephen Kennedy (he was Chaplin to her recent Mother Courage) for the speaking role of Mauer, the alpine guide.

At three and a quarter hours, including two intervals, this is a longish evening but a riveting and rewarding one. Following her production of Vaughan Williams’ Riders to the Sea 18 months ago, Fiona Shaw proves herself an opera director of note. Hopefully, her equally brilliant acting career won’t delay her return to the opera house for long.