Pendle: a place synonymous with witches and Britain's most notorious diabolism trials. The candle-passing parlour game says, if it dies in your hand, you've a forfeit to give. If you're going to write a book about famous witches, it had better fly.

Winterson's novella is set in 1612, during the feverishly paranoid reign of James I. It describes the plight of a group of paupers, mostly women, accused of evil practices and tried at the August assizes. In the previous decade, the gunpowder plot almost did away with the king. Heresy is his obsession. Author of the instructive Daemonologie, he is, as Pendle's local magistrate puts it, "a meddler". In this fraught climate disfigured elderly ladies aren't safe, alchemists can be arrested for creating mechanical beetles, and Catholics are thumb-screwed. "It suits the times to degrade the hoc est corpus of the Catholic mass into satanic hocus pocus," notes William Shakespeare, who features briefly, and not preposterously, in Winterson's book.

Outlawed beliefs have been dangerously elided. "Popery witchery, witchery popery," Thomas Potts, recording clerk for the prosecution and the crown, is fond of chanting. Potts arrives in Lancashire, one of the wildest corners of the country, desperate to preside over a trial as sensational as North Berwick, where the sorcerers responsible for the king's shipwreck were prosecuted. He stakes out Pendle Hill, a landscape of moors and mists, mossy baptismal pools and forests, ready to accost beldames on their broomsticks.

So it comes to pass. A coven of aggrieved relatives meets in a remote tower on Good Friday for a mutton supper and to orchestrate the escape from Lancaster prison of their grand-dam, Old Demdike, who is suspected of sinister crimes. They conduct blood rituals. Into the fray rides Alice Nutter, astride rather than sidesaddle. A noble widow who owns Malkin Tower, she's implicated in the proceedings after the group is confronted by the authorities. Alice is a different kettle of fish from the rabble. Having made her fortune with a magenta dye and a royal warrant from the previous monarch, she's fiercely independent, and prone to charitable acts and harbouring fugitives. She's also mysterious, a realm-crosser. Strangely youthful though old, crackling with erotic appeal and a lover to both sexes, Alice is the kind of woman who makes Potts "feel less important than he knew himself to be".

That the story is predetermined does little to dry up the narrative suspense. Winterson's version has all the grisly freshness of a newly exhumed graveyard corpse. Hangings and burnings are coming, but along the way there are revelations, plot twists, celebrities and trysts  all very bold inventions.

The narrative voice is irrefutable; this is old-fashioned storytelling, with a sermonic tone that commands and terrifies. It's also like courtroom reportage, sworn witness testimony. The sentences are short, truthful  and dreadful. "Tom Peeper raped Sarah Device. He was quick. He was in practice." Absolutism is Winterson's forte, and it's the perfect mode to verify supernatural events when they occur. You're not asked to believe in magic. Magic exists. A severed head talks. A man is transmogrified into a hare. The story is stretched as tight as a rack, so the reader's disbelief is ruptured rather than suspended. And if doubt remains, the text's sensuality persuades. Teeth raining from the sky into Alice's lap click and patter like pebbles. A mouth painted on to a door feels soft as a lip, because it is a lip, momentarily. There's a forensic quality to the paranormal manifestations  smells, lesions, blood  that convinces, horribly. Occasionally, the daylight gate as a descriptive phrase becomes repetitious. By virtue of titular importance it's the most potent incantation, and could perhaps have been used more sparingly.

The usual witchy tropes are present  warts, cauldrons, familiars  but they are upgraded, made suitable and sensible. If a toadstool features it's because Old Demdike knows which ones growing in prison are edible. Enchanted mirrors are by-products of mercury experimentation in laboratories. To avoid clichéd associations would be coy. Winterson would rather take these motifs on, activate and invigorate them.

And she knows where true horror lies. Not in fantastical dimensions, but in the terrestrial world. Most grotesque and curdling are the visceral depictions of early 17th-century Britain  the squalor, inequality and religious eugenics. The subjugation of women and prostituting of children. The degloving and castration of Catholics. Poverty. Sickness. Desperation.

As well as being a gripping gothic read, the book provides historical social commentary on the phenomenon of witchcraft and witchcraft persecution. Fear is a relative thing; its effects are relative to power. If you are king and have nearly drowned in a conjured storm, why not expunge the old practices from your sovereignty? If an ugly woman's pet has mauled your leg, duck her in the river to reveal her true identity. If you are destitute, starving, with nothing to lose but your soul, a deal with the Dark Gentleman may be a very attractive prospect. If you believe in such things.

 Jeanette Winterson will be appearing at the Edinburgh International Book Festival on 20 August. Sarah Hall's The Beautiful Indifference is published by Faber.

 This article was amended on 20 August because the wrong Sarah Hall had been credited with writing it. It is indeed by the author of The Beautiful Indifference and not the former senior Guardian correspondent of the same name. Apologies to both.

The Pendle witch trials of 1612 are among the best-documented in English history, and have inspired writers and poets since the 19th century. Now Jeanette Winterson has added her own interpretation of the events, in a novella (for the newly revived Hammer Books imprint) that mixes a sharp-eyed view of history with elements of magic and some of the more outre touches that horror fans might expect.

In the wild country of Lancashire, Catholicism clung on as stubbornly as more ancient beliefs, and to King James I, the one was as dangerous as the other. Priests and witches were pursued with equal relish, neighbour often denouncing neighbour as one or the other before the light of suspicion fell on them. The Pendle trials resulted in the execution of nine women and two men, for the most part poor and uneducated, except for the gentlewoman Alice Nutter, whose inclusion among the group accused of celebrating a witches' Sabbat on Good Friday remains a mystery. Winterson's cast share the names of the historical protagonists, though she has reshaped them into fictional characters  even Shakespeare is given a cameo. Her Alice Nutter is a self-made woman, a widow grown rich from an invention born of her knowledge of alchemy, which she learned many years earlier from Dr John Dee, Queen Elizabeth's astrologer and magician. She is also a woman with a mysterious past, torn between her love for a woman, Elizabeth, whose dabbling in magic crossed a point of no return, and a secret priest tortured for his faith.

In spare, precise prose, Winterson conjures a world of casual brutality, where the poor live little better than animals and where justice is an unimaginable luxury. Women are raped because they have no voice to protest, children are sold, accusations fly between rival families until everyone is tainted by the stench of witchcraft. "Such women are poor," Alice Nutter tells the investigating magistrate Roger Nowell. "They are ignorant. They have no power in your world, so they must get what power they can in theirs. I have sympathy for them."

Naturally, it is this sympathy that proves Alice's downfall. Winterson is at her best here when she is dealing with real horrors, whether the disease and depredations of poverty and prison or the ingenious ways that men have devised to torture one another. The landscape she describes is bleak and atmospheric, inviting an affinity with dark powers. But the social realism sits uneasily alongside the supernatural elements: a severed head that speaks, or the appearances of the mysterious Dark Gentleman, to whom Alice is supposed to be a sacrifice. The story is at its least convincing in these moments, as if the truth of why women were accused of witchcraft  because they did not conform to convention  can't be reconciled with the demands of the horror genre. The description of a prisoner being skinned alive has a far more chilling effect here than the appearance of an animated corpse, because it is true.

Ultimately, this is a story about the relationship between power and fear, about the ways in which the strong must crush those whose potential powers unsettle or threaten their authority. But it is also a story in which love proves stronger than death. Like all horror stories, it asks the reader to suspend disbelief and enter into its parameters, but it can't shake off the truth that the real forces of darkness and light exist within the extremes of human nature.