What happened when Wendy grew up? Geraldine McCaughrean won a competition to write the sequel to Peter Pan. She tells Mary Russell how she plans to follow such a classic.

Geraldine McCaughrean is gleeful: "I can't believe it. It's like getting into Fort Knox: they've given me a parking space." The cherished parking place is the delivery bay of Oxford University Press (OUP) but really, it's the least they can do, for not only is McCaughrean one of their busiest authors (some 20 of her children's books have been published by OUP), she is currently engaged in the challenging task of writing the sequel to Peter Pan, having seen off more than 100 other writers who competed for this honour.

Peter Pan, first produced onstage in 1904, brought fame to JM Barrie. One offshoot of this was that he became a trustee of Great Ormond Street Hospital (Gosh), Britain's oldest children's hospital.

Invited to sit on the fund-raising committee, he chose instead - because his time was limited - to make the Peter Pan royalties payable to Gosh.

When the copyright was due to run out, Britain's then prime minister, Jim Callaghan, introduced a special amendment to the Copyright Act which gave the rights to the hospital in perpetuity. In the EU, the rights extend until 2007 and in the US until 2023.

Details of the royalties have traditionally been kept secret but are known to be significant. With this new venture, however, the royalties will be shared between Gosh and the author.

Barrie's Darling family with all their slightly threadbare gentility and their faithful pet dog are quintessentially English and so too is Geraldine McCaughrean.

Now 54, she was brought up in the London suburb of Enfield, by a mother who was a teacher and a father who was a fireman. Her childhood was spent devising novels and longing for a horse. Her favourite writer was Rosemary Sutcliffe.

She trained as a teacher but later took a job at Marshall Cavendish, the part publishers, and there she learned the editing skills that she put to good use when she later became a writer.

While living in Banbury, she used to travel to Oxford every Sunday for an ecumenical service at the Dominican priory and there she met Ron Heaty who turned out to be an editor at OUP.

He liked what she wrote and more than 100 books later - three of which have won the Whitbread Children's Book Award - she is now well established and, though a regular award-winner in her category, is not, curiously, rated a best seller. Why?

"Well, I often write historical fiction and I've noticed that children tend to gravitate towards the easier read. A book with smaller print and without pictures may be too much of a challenge. Other writers write what I call playground fiction which is familiar territory for children but I've never been able to do that. The playground of today is vastly different from the one I knew."

She has retold many of the Greek legends as well as the award-winning Noah story - Not the End of the World - but it's what she calls the "Pan" book that people will be watching out for, its publication raising the inevitable questions: why do it? Why not leave the classics alone?

McCaughrean responds robustly: "It's what Barrie would have wanted."

How can she know this?

"Because he had already sanctioned a novel called Peter in Kensington Gardens, so he wasn't against the idea of a sequel, plus he was passionate about raising money for Gosh, which is what this book will do. Anyway, I'm neither rewriting nor retelling Peter Pan. I'm writing about what came next."

So how on earth do you follow this most famous and popular of children's books? For answer, she pulls from her bag a seductively soft leather notebook - red with silver-edged pages, bought in Libertys to celebrate winning the competition.

"My husband read about the competition and said I should have a go, and I thought yes, it would be an altruistic thing to do. I didn't know there was any money involved," and she smiles apologetically.

"Anyway, I submitted a synopsis and a few notes and a chapter from the middle. There were over 100 entrants and when OUP phoned and said, 'you've won', I said, 'you're joking'. Then when it had sunk in, I went off and bought this notebook. I used to do my writing on the train. Now it's straight onto a computer except for what's in here."

She has no strict routine to her writing day. In 1988, when she got married, gave up the day job and concentrated on writing, it was simple enough. "It was, take daughter to school. Write all day. Forget to collect daughter from school."

Now, the daughter is 15 and her husband has just retired, which means her writing day is not always her own. Time is always at a premium: "No holiday this year. All we can do is manage five days in Jersey."

Being an award-winning writer also eats into her time: "I get asked to judge a lot of children's books competitions and I'm always hoping the next book won't be any good and I won't have to read it all the way through."

Her own choice of books is varied. She likes Maeve Binchy and the way she interweaves the different characters' stories but and shakes her head at Ian McEwan. "His latest novel is terrible. He fails completely to integrate his research."

Her tea gets cold as she talks, pulling more things out of her bag to show me: a programme for a Peter Pan ballet she's just seen, her business card. But really what I want to hear about is what happens to Wendy now she's grown up.

"Oh," and she's very matter of fact about this, "well, Wendy and the boys grow up and some of them get married. Not Peter, of course, but if Wendy and the children want to find him they have to go back to Neverland and the only way they can do that is by recovering their childhood. They do that by borrowing their own children's clothes and becoming children again. There's a lot of dressing up in it. Slightly - one of the lost boys - grows up but has no children so he has to borrow some from Tootles but Tootles only has a daughter so" and she pauses, "so he has to dress up in girl's clothes."

Hmmm. Cross-dressing and finding your inner child. Is there an adult story in there somewhere?

"Yes, well, I hope that adults will read it as well as children." Not that she's into Freud or Barrie's own identity problems which propelled him, as a small boy, into putting on his dead brother's clothes in order to get his grieving mother to notice him. McCaughrean shakes her head at the thought: " No. I don't want to go there."

And what about the things that preoccupy us now, more than 100 years later? Things such as violence and gender inequality? What about poor old Wendy forever the fretting little mother while the boys take on the pirates and have all the fun?

She nods. "Yes, well, she'll probably be the same but maybe she'll be a bit more active, getting up to fix a drain and so on. I have to work it out. And I'm thinking of bringing in the Great War. After all, Pan will be set in the early 1930s so they'll all have been affected by the war. Except Peter, of course. So there'll be references to war and death.

"There are some restrictions: because of the film, I'm not allowed refer to Tinkerbell drinking poison or the crocodile swallowing a clock," she explains. "Oh and the hospital has stipulated, no reference to smoking."

Right now, she's four chapters in but though the whole thing has to be delivered by December - for publication next year - she's not too worried. Her usual style is to write a book in six months and this one is already mapped out in the little red book.

Geraldine McCaughrean's website is: www.geraldinemccaughrean.co.uk