I'm not sure I'm really qualified to review Monica Ali's new novel because I don't know what a French tip manicure is and I'm rather hazy on taffeta. You also feel redundant reviewing some books because their trajectory is so assured. Untold Story is undoubtedly going to sell by the juggernaut-load and will be the catalyst for spirited debate in reading groups and elsewhere.

"What if Princess Diana hadn't died?" starts the blurb on the dustjacket. "Untold Story takes the life of the world's most famous woman as a point of departure." OK. However, we are then informed that the heroine of Monica Ali's "fairy-tale" is a "fictional princess", although the details of her life seem to have a bizarrely identical resemblance to that of Princess Di.

Bringing Di in and then dismissing her is as convincing as asking for someone's telephone number on the grounds that you want to have it to make sure you don't ring it by accident. Why the disavowal? Is it taste? Fear of outraged Di fans? The spectre of some litigation over image rights?

Clever is the word that kept coming to my mind as I read Untold Story. Clever idea, cleverly researched, cleverly done, as you would expect from an Oxford PPE graduate. This Princess Di doesn't die in a Parisian tunnel but survives to fake her own death in a swimming accident. Severing all bonds with her previous life, including her children, she now resides in Kensington  not the one in west London, but a small nowheresville in the US.

From King Arthur onwards, there's been a fascination with the idea of the famous living on in secret, rumours of them adopting a new identity and a different life. I've long cherished the idea of writing a story about Elvis Presley, Pablo Escobar and Saddam Hussein running a dry-cleaning business in Arizona.

Known as Lydia Snaresbrook, the ex-princess leads a fairly contented life, lunching with ladies and volunteering at the local dog shelter. She has an ambivalent relationship with Carson, a straight-shooting American with some sadness in his past who might have wandered in from a Mills and Boon novel (I'm sure Ali is doing a deliberate pastiche here).

This tranquillity is undermined by the stranger coming to town. Completely by chance John Grabowski, one of the most persistent and long-serving paparazzi who dogged her pre-disappearance days, stops off in Kensington. Lydia has of course had some plastic surgery but Grabowski's trained eye catches the unchanged irises and he realises he may have the scoop of the century.

Compared to what Irvine Welsh or Martin Amis would have done with the character of a paparazzo, Ali goes easy on Grabowski. He isn't very likable, but Ali gives him some redeeming features and ironically he seems to be as adrift as the princess in trying to make sense of his life. I wondered if Ali was making him less loathsome to allow for some accommodation with his former quarry, but that's not how the story ends.

This encounter provides the fuel for the main narrative. For Lydia the questions are: has he recognised me? If so what will he do and what do I do? For Grabowski: is it her? If so what do I do?

Monica Ali was on one of Granta's best of young British novelists list, in 2003. The Granta lists are regarded as full of Booker fodder, Jamesian exquisites like Alan Hollinghurst or superbrains like Julian Barnes, but they've always been an eclectic mix. Readers of Untold Story shouldn't expect that category of literary fiction; this isn't a Dostoevskian exploration of the depths of the human soul or an effort to stretch the remit of the novel. But then it isn't striving to do those things; it's what Graham Greene termed an "entertainment".

We don't really get a comprehensive explanation of why Lydia quit her former life or how it feels to be cut off from everything in your past. This is a "what-if" novel chiefly about what's it's like to live looking over your shoulder all the time, almost in Elmore Leonard territory.

As with Ali's acclaimed debut novel, Brick Lane, there is an epistolary section in the middle (where it rather sags), which presumably is meant to give us some insight into the princess's psychology, but for me it doesn't really come off. Similarly there is an attempt to make Lawrence, the private secretary who facilitated her getaway, a major character  this also doesn't really add anything. Untold Story goes to 340 pages, and feels a bit stretched in places. If it had come in at, say, 280, it would have been perfectly streamlined.

Ali's third-person princess, however, is a very convincing and sympathetic figure. One of the things I admire about the British upper classes is that however ridiculous or philistine they may be, they tend to be fighters. The princess has steel and the cat-and-mouse play between Lydia and Grabowski is extremely skillfully done (and who really is the cat?). I can't see this as a feature film, but it would make a great piece for television.

Monica Ali is shaping up to be the Fay Weldon of her generation, producing the publishers' delight, classy commercial fiction  although many male readers like me may find there's a shade too much about dresses and potato salad.

Monica Ali makes some surprising decisions, to say the very least. After her Booker-shortlisted, bestselling debut Brick Lane, she came up with a book of short stories whose setting was inspired by  well, her second home in Portugal. Not every publisher's dream followup, nor, one would hazard, every reader's. Next she chose to write about a hotel kitchen. Now this fine literary author has devoted a novel to the subject of Princess Diana.

Untold Story is the tale of what might have happened to Princess Diana had she lived. Yes, the real Princess of Wales, Diana Spencer, Lady Di; she of the pie-crust collars and St Tropez yachts; she of the heir, spare and landmines. What if, instead of dying in a car crash in 1997, Britain's Queen of Hearts, by then hounded by press and royals into panda-eyed derangement, could tolerate the torment not a moment longer and disappeared on a dawn swim, supposedly drowned and munched by sharks? Just suppose. Let the untold story begin.

The novel opens in small-town America, where Lydia, as she is now known, lives a quiet life, surrounded by a small group of friends. Immediately we are plunged into the familiar world of American suburbia, with three women  brunette, blonde and redhead  waiting for Lydia to turn up for her birthday meal. So far, so surreal. It reads like Judith Krantz meets Jonathan Franzen, the trashiest of premises dressed in fine-tuned observation.

We then discover just how this has happened. Diana-Lydia beaches up as planned on a Brazilian shore, where she's whisked off for hair dyeing, cosmetic surgery, tanning and vowel-roughening. She is profoundly and eternally devastated by having abandoned her sons, but life in Blighty, exacerbated by her conviction that she would be bumped off, had become intolerable. A loyal private secretary, Lawrence Standing, her sole accomplice, guides her through her transformation into a long-haired brunette with glottal stops and a nebulous past as a British divorcee, and she finds refuge in the US, land of reinvention. She chooses a dozing townlet called Kensington  the name tickles her  and becomes a dog handler in a canine shelter. Oh, Monica. Really.

Lydia has a pleasant boyfriend called Carson, who is never permitted emotional intimacy because of the humdinger of a secret lurking in her breast. Ali is not quite at home with her transatlantic dialogue, overdoing all the "dang"s and "kind of schlubby"s. Since when did any American add the definite article to "Lincoln Center"? But there is something endearing about the strength of Lydia's friendship with these women, the poor hunted Diana in their sisterly midst.

However, hard-won tranquillity is about to be shattered. A seedy paparazzo snakes into sight. Having spent all his early career photographing one Princess of Wales, John "Grabber" Grabowski is casting around for somewhere quiet to work on a book. Also idly taken by the name Kensington, he fetches up with his telephoto lens and an eye for a pretty lady, and is soon leching at attractive local Lydia, who no longer bothers with her disguise of brown contact lenses. Despite her "repertoire of self-adjustments", something about her ultramarine orbs, her laugh, her very walk, is eerily familiar. Grabber is too well acquainted with that face down the end of a lens not to focus on those eyes with their distinctive tiny circle of green round the right pupil. He has stumbled on the story of his life.

The novel is narrated in the third person, as well as through Lydia's letters to Lawrence and Lawrence's diaries, and it demonstrates psychological subtlety that the potboiler it resembles would never possess. Ali makes of Diana a complex character, who disappears by necessity behind her own disguise. Once Grabowski is on the chase, the novel takes on a thriller-like quality, with tension propelling what is essentially a bewildering but patchily enjoyable read.

Curtis Sittenfeld achieved a balance of fact and fiction with American Wife, about Laura Bush. Taking on an icon of Diana proportions is more challenging: with the highly familiar history welded to an invented tale, it's hard for the reader to let go and wallow in the narrative, and the novel comes dangerously close to painting itself into a corner. Unremittingly silly yet containing real pace, this is an ill-advised, debatably insensitive  indeed, almost unworkable  project, skilfully executed. Should we now be watching out for Ali Smith on Carla Bruni, Hilary Mantel on Lindsay Lohan? Probably not.

Joanna Briscoe's novel You will be published by Bloomsbury in July.