I am sitting with Adriano Shaplin, founder of the Riot Group, in my apartment in South Philadelphia. Adriano will be subletting my place while I'm in Edinburgh with Pig Iron's three-woman clown show, Flop. We've just wrapped up nine weeks of collaboration on Hell Meets Henry Halfway, Pig Iron Theatre Company's first text-driven work and Adriano's first collaboration with a company other than Riot Group.

We're talking about Philly's low profile – Philly the underdog city, the city with a chip on its shoulder, Philly the home of cheese steaks and Rocky. ‘What is this city about?' asks Adriano. 'I know what San Francisco is about. San Francisco is about gay people and biking and hills and computers. Seattle – coffee, rain all the time. What is Philly about? I don't know.'

That said, Adriano, along with the Riot Group, are planning to move to Philadelphia in 2005 and make the city their US base. They will be plugging into a burgeoning, and as-yet-unnamed, ensemble theatre renaissance that is making its mark on the city. A number of ensembles, founded in the 1990s and making very different kinds of work, are coming into their own. Headlong Dance Theater, a contemporary dance company known for their postmodern humour and ‘talking dances', recently completed a collaboration with Kyoto's Arrow Dance Communication which culminated in performances in Japan, Philadelphia, and New York. New Paradise Laboratories (NPL), whose kaleidoscopic dystopias pull from pop culture's detritus as well as medieval art, will enjoy its second commission by the Tony-winning Children's Theater of Minneapolis next year. And my own company, Pig Iron, has been invited back to the Public Theater in New York to develop a new work based on Shakespeare's Measure for Measure, set in a morgue. Important performance work is coming out of Philadelphia, and curators and presenters across the US and abroad are starting to take notice.

The surge is driven in part by economics. ‘Philly is the only large east coast city that is still cheap to live in and make work in,' says Amy Smith, co-founder of Headlong. Rents are a quarter of those in nearby New York City, and the city is relatively compact and easy to get around. Philadelphia artists are able to take advantage of New York's cultural marketplace without facing the hardships associated with trying to make work in New York's bazaar-like atmosphere. Adriano reports that Matt Saunders of New Paradise Laboratories, when asked why his company is in Philly, replied: 'Yeah we're in Philly. We perform in New York whenever the fuck we want. And we live in houses here.'

Philadelphia is also buoyed by a generous funding community, led by the multi-pronged Pew Charitable Trusts, which funds the Dance Advance program, the Philadelphia Theatre Initiative, and one of the largest fellowships for individual artists in the country, the $50,000 Pew Fellowship in the Arts. The rotating categories at the Fellowship include scriptworks and choreography as well as ‘performance art'; in 2002 the performance art fellows included Big Art Group's Caden Mansen, NPL's Whit McLaughlin, designer-writer-performer and one-man phenom Thaddeus Phillips of Lucidity Suitcase, and Pig Iron's co-artistic directors, the first collaborative group to receive the fellowship.

Cheap rents, good funding, plus the largest number of not-for-profit theatres in the country. Two public radio stations, including University of Pennsylvania's WXPN, a prime destination for singer-songwriters. A variety of opportunities for informal performance, ranging from performance salons at the monthly First Friday (primarily a showcase for visual arts in Old City), a complementary Last Monday series founded by Big House Plays & Spectacles (known for its site-specific installations and brilliant Beckett interpretations), to drag-and-vaudeville cabarets at the Trocadero hosted by the Big Mess Orchestra. Philadelphia has the largest number of students in any US metropolitan area, which provides a young audience and teaching jobs for artists. And perhaps the underdog character keeps the city the inexpensive well-kept secret that it is: 'People are here because they want to make work, not because it's a “cool” place to live,' says Smith, again comparing the city to San Francisco or New York. New York is the city where you always look over your shoulder for the next thing, sometimes out of economic necessity; Philly is a city that lets you concentrate.

When this crop of hybrid-performance-creators coalesced around the turn of the millennium, cross-pollination began in earnest. Saunders, a performer and set designer for NPL, has provided set designs for small independent theatres like Theatre Exile, for Pig Iron, and for Headlong's Britney's Inferno, an interrogation of fame and the mind of the US teen. Lee Etzold, known to UK audiences as the tall and over-organised clown in Pig Iron's Flop (Edinburgh 2004), straddles all aspects of the Philly arts scene: this former tapdancer-and-basketball-player turned independent-singer-songwriter is a co-founder of New Paradise Labs, has performed with Headlong Dance Theater and in Brat Productions' all-female adaptation of Moby Dick, and for many years worked at the Philadelphia Fringe Festival, before the festival expanded and split in two to become the Philadelphia Live Arts Festival and Philly Fringe.

The importance of this festival, founded in 1997 by Philly native and former Pennsylvania Ballet dancer Nick Stuccio, to the performance scene in Philadelphia can't be overstated. Stuccio, who calls himself a ‘gym teacher of cultural ecology', has put Philadelphia's generative theatre movement in a global context, inviting such luminaries of the international circuit such as Richard Maxwell, Shen Wei, and Teatr Biuro Podrozy. From the UK, Stuccio has brought creators ranging from ‘hard-core surrealists' Ridiculusmus to comedy duo the Boosh to star choreographer Akram Khan. Stuccio has also been a major supporter of the Philadelphia artists, with high-profile presentations by Rennie Harris Pure-movement and commissions of new work by Pig Iron, New Paradise, and Headlong at recent festivals. Stuccio sees himself as a ‘bullhorn/platform’ for the new work coming out of his hometown. 'It's about Philadelphia's sensibility more than “movement-based” or “developmental”,’ proposes Stuccio. 'It's based in taking risks, experimenting, reinvention, innovation, a real, honest exploration of new territory.’ In the 2004 festival, Pig Iron will present its collaboration with Shaplin, an adaptation of Witold Gombrowicz's Possessed; Headlong premieres its next major work Hotel Pool, a dance choreographed (of course) for hotel pools which will tour hotel pools across the country in the fall; and Stuccio has commissioned NPL to create a new martial arts adaptation of Don Juan.

Now another generation of dance and theatre artists, inspired by the cohesion and successes of the Philly scene, are moving into town. Hotel Obligado, a commedia-based company of graduates from Dell'Arte in California, set up shop a couple of years ago. Young choreographers and emerging artists take part in 'Dance Theatre Camp' each summer, an artist-led and participant-taught month-long series of workshops in hybrid creation that Headlong launched a few years back. And Aaron Posner, founder of the Arden Theater and chair of the Live Arts Festival's board, has started exploratory conversations about creating a year-round centre for experimental performance in the city.

What to compare it to? 1890s Paris, when the impressionists founded the Salon des Refusés, plus cheese steaks? Greenwich Village in the 1950s, set to 'Eye of the Tiger'? Don't tell anyone – Philadelphia is a simmering theatrical broth all its own.