A novelist can't lie to readers, says Canadian writer Margaret Atwood. "You can mislead them, withhold information, even not tell the whole truth, but you can't lie." She could be speaking of her work in general, but is referring specifically to the densely layered narrative of her 10th novel, The Blind Assassin, which has just been published.

With only a couple of days to go before the announcement of the short-list for this year's Booker Prize, Atwood smiles at the mention of it. Small blue eyes opened wide, she assumes a heavy French accent and asks, "what iz dees prize La Booquer? I know nutting about it. Pleeze to explain."

Already a Booker contender three times and always strongly tipped, she recalls her first shortlisting, in 1986, for her cautionary, futuristic parable, The Handmaid's Tale, when, as she says with characteristic irony, "Everyone knew Kingsley Amis was going to win anyhow but I asked my publisher about the prize dinner, was it very formal and should you dress up?" Although she was assured English women "dress very badly", Atwood decided to make an effort. She visited Selfridges and purchased some exotic silver material - "not enough" - to make an outfit. She then spent the evening worrying about "my top moving and my buttons popping and flying off across the room".

It's a good story. Atwood's anecdotes usually are. She is interesting, sharply clever and very funny. Her deadpan delivery complements her one-liners. For all the imagination of her work and the often beautiful imagery, she appears the most practical of individuals, alert to everything from Harry Potter to former Canadian Prime Minister Pierre Trudeau's death. While her compatriots Alice Munro and Mavis Gallant are among the world's finest short story writers, Atwood as poet, novelist, short story writer and critic has most consistently presented the diverse range of Canadian writing to an international audience. Taught at universities and also read on beaches, Atwood's work has been translated into 33 languages.

If her earliest novels, such as The Edible Woman (1969), Surfacing (1972) and Lady Oracle (1976) concentrated on the experience of young women, her fiction has changed and evolved, experimented with time scales and explored different subjects. As she says, "I got older. I began writing about very, very young women, and on to young women, to not so young women." Iris Chase, the narrator of The Blind Assassin is 82 and ageing becomes one of the novel's secondary themes. Atwood refers to the way our perceptions of age change. "I remember writing a story about a really old woman when I was about 17. Now she was 40, teetering on the brink of the grave."

A small woman with an expression of mild surprise, Atwood in person looks better than she does in photographs, although the camera never misses the humour in her face. Sixty-one next month, she is direct and far more relaxed than her narrators tend to be. Atwood the writer has the confidence of a craftswoman aware that each detail has been dealt with. There is no pretence. "I tell stories. I'm interested in human behaviour." She also seems less protective of her books than writers usually tend to be. Her attitude is that of a sensible mother who reckons her children are grown up enough to look after themselves.

Coming five years after Alias Grace, which was shortlisted for the 1995 Booker prize and also for last year's IMPAC, The Blind Assassin is another big, heavily plotted, spilt narrative, drawing on a vast amount of research. Alias Grace, set in 19th century Canada, was based on the true story of Grace Marks, a woman convicted for her part in a notorious double murder. Grace was finally released but, as Atwood makes clear, neither her innocence or guilt was ever proved.

THE novel is as ambiguous as the real-life version. "I think of all the things" that have been written about me, reflects Grace during her narrative, "And I wonder, how can I be all of these different things at once?" At the time of its publication, Atwood remarked that having finished the book, she wasn't really all that sure if she liked Grace. How does she feel about her now?

"Well, I don't know. She was certainly intelligent. But if you're asking if I'd like to have her as a roommate, I'd say no. It would be too creepy. You'd always be wondering had she really done it."

While agreeing that Alias Grace is an historical novel, Atwood quickly interjects "all novels are historical, characters can't exist in a vacuum". The Blind Assassin, in addition to being a tense family saga and murky romance, has been billed as a thriller. I had to admit I solved the mystery early in the book. "Yes," she says, "so did my daughter." It is also a social history of sorts and has a strong sense of period. Descriptive detail is important in Atwood's work, as are objects, smells, even the weather. "I think weather is very important and getting more so now that we destroyed the ozone layer. "A book is a plot, the `what next?' It is also the setting, the characters, the details of language. This thing about detail though, what can I say? I'm a writer, I look, I see." It is in keeping with her irony that in the novel the Chase family fortune is built on buttons. It all began with a button factory. She admits to having "always been keen on buttons, even now I always cut them off old clothes", and recalls how she used to play with the button jar as a child. "I'd arrange the buttons according to class, the mother of pearl to one side, the ordinary, functional ones to another. There was a distinct social hierarchy, but as men in death, they all went back into the same jar."

She speaks of the way buttons "open to reveal what has been hidden and close to conceal what has been disclosed." Social class is also evident. Winifred, the manipulative, snobbish sister of Richard, the ambitious cad whom Iris marries, is a self-creation honed by new money. "In Canada even old money is pretty new. Winifred is a social climber." Atwood also stresses that she deliberately made the Chase dynasty manufacturers rather than merchants, as a way of emphasising that "newness".

There have been surreal moments in her fiction, but Atwood is a controlled writer, appealing more to the intellect than the emotions. Her tone is invariably ironic. Yet her finest book, Cat's Eye (1989), achieves a rare emotional force through the narrator's rage. It is a personal, confrontational, often angry, first-person narrative in which an artist, Elaine Risley, approaching 50, returns to her native Toronto for a retrospective exhibition after years in Vancouver. Risley is isolated, as aware of her bullied childhood as she is of her adult loneliness.

It is interesting that Risley's paintings are described as having a feminist following. Atwood was long ago embraced as a feminist icon. She has never really seen the sense of it. "Gender is just a part if it. I mean we live in a world in which 62 per cent of the people have never used a telephone. Lots of men are very poor. Lots of men have no power. It's not just women. I wrote The Handmaid's Tale before surrogate motherhood became a big issue. Things have come true. That book is about what can happen, what will happen when a society is disrupted." Atwood has never had an agenda. In common with J G Ballard, she is drawn to futuristic fiction. "It's about the `what if'. It has its own rules. No bug-eyed monsters, no space ships. And it's more frightening because it is possible."

The Handmaid's Tale is set in Cambridge, Massachusetts. But Toronto provides the dominant world of Atwood's work. In common with any North American child, she clocked up hours of long-distance car journeys and, having spent several years living in the woodlands of Northern Ontario and Quebec with her entomologist father, she knows the natural world. As a result she knows her country. "I feel strongly Canadian." Asked exactly what this means she begins to list a number of friends all from different countries. Canada is multinational as well as officially bilingual and Canadian writing is, as she says, multi-voiced, "it has been for a long time and will continue to be."

The Blind Assassin is published by Bloomsbury at £16.99 in UK.