Hot sun blisters the parking lot of a Los Angeles sound stage, about 30 miles north of Disneyland. A gaggle of actors outfitted as dwarves with phallic bulbous noses and coloured tights stand in the shade, smoking. My first thought was that this was a completely Paul McCarthy moment. Actually, it was a lunch break from McCarthy's demanding day of shooting for his project on Snow White. McCarthy himself is playing a character he calls Walt Paul, and has been transformed into a middle-aged Walt Disney.

A major artist who has redefined the nature of sculpture and performance, McCarthy announced himself with his installation 'The Garden', part of the game-changing 1992 show 'Helter Skelter' at LA's Museum of Contemporary Art. This is his most ambitious project to date. For one thing, McCarthy bought this 60,000 sq ft sound stage. As he says, 'it is really risky - a museum would look at this and see a storage and archival problem. I have to be real and say: 'Paul, you have made a piece that probably won't be sold.'

Any doubt that the piece will be a difficult sell is dismissed on entering the building to see a giant forest (a recurring theme in his work) of leafless trees and ferns. It is a lovely but entirely artificial sight, and the illusion is occasionally broken by gaping holes in the tree trunks, left by the moulding process. Furthermore, costumes once worn by Walt or by White Snow are strewn along the path, and there is a bottle of erotic lubricant under a bush.

McCarthy leads me along the path. We come across the naked figure of a woman, a rubber life cast of one of the actresses playing White Snow. 'This object was fucked,' he explains. 'It is not a real human. It may have something to do with how we see reality and desire,' he continues. 'And art. This is a kind of hyper-reality of desire. A Disneyesque landscape that does not exist. A dreamscape. And in the middle is my house.'

Sure enough, McCarthy's childhood home - a modest bungalow with white lace curtains in Salt Lake City, Utah - has been reconstructed at three-quarter scale. It is just a stage set façade, but in other sets McCarthy has had every room painstakingly reconstructed, and the interior completely trashed: the kitchen is slathered with chocolate; in the parlour, naked life casts of White Snow and Walt are splattered with what looks like blood.

At the Park Avenue Armory in New York, where the artist's installation 'WS' (as in White Snow) goes on view on 19 June, viewers will see the forest, the house and the sets from ground level or from a mezzanine, but will not be able to walk through it. Instead, they will watch the action on giant screens. McCarthy's earliest performances, in the 1960s and 1970s, were influenced by the man who invented the Happening, Allan Kaprow. These performances were improvisational and that remains McCarthy's comfort zone.

The complex relationship between the older Walt and the younger White Snow recalls another film completed by McCarthy last year, 'Rebel Dabble Babble', which will be on view at Hauser & Wirth New York from 20 June, along with some of McCarthy's White Snow drawings or sculptures. Based on the film Rebel Without a Cause, it features messy erotic encounters between director Nicholas Ray, played by McCarthy, and the Natalie Wood character, played by Elyse Poppers, with James Franco in the James Dean role.

However, 'White Snow' remains the more personal piece, exploring McCarthy's past and Mormon upbringing. Yet he insists that this is more than autobiography. 'It is an intentional work of art. You need more than psychology to make a work of art,' he says. 'I think it is not so much about who I am today, but me through my history. There is something poignant about the 1950s when Disney formed Disneyland as dreamscape. It's about a kind of enjoyment and dream, as opposed to accepting who we are in reality.'

The full, unabridged version of this article appeared in W*171

Editor: Michael Reynolds. Special thanks to Andrea Schwan