The Hand of the Director : ORSON WELLES: The Road to Xanadu,<i> By Simon Callow (Viking: $29.95; 640 pp.)</i>

Orson Welles’ life was so encrusted with fabrication and myth that by the end, in 1985, you wonder if he knew what was true. Welles didn’t much care, and given a choice, he preferred imagination. Or as he put it in the mischievous title of one of the best of his uncompleted movies, “It’s All True.”

Simon Callow is an English actor and director. He was prominent in “Four Weddings and a Funeral,” and he wrote a fine life of Charles Laughton (Grove Press, 1988). One of the pleasures of his rich biography of Welles is that he is able to evaluate the fibs and the facts without leaving out the charm. There’s already a shelf of books about Welles, including several biographies; David Thomson’s awaited “Rosebud” will be published later this year by Alfred A. Knopf. Callow’s formidable contribution is his insight into Welles’ theatrical work.

“The Road to Xanadu,” the first of two volumes, is an intimate look at Welles from his childhood through his early triumphs. First published in the U.K., this edition was printed from the British plates, which gives us British usage for this most American subject. Minor errors have gone uncorrected (a forward is not a baseball position). Callow began his research after Welles’ death. The master’s voice is more effectively rendered in Peter Bogdanovich’s “This Is Orson Welles” (HarperCollins, 1992). Still, Callow is comprehensive without becoming archival and this book is unlikely to be surpassed.

George Orson Welles was born in Kenosha, Wis., in 1915. When he was not yet 2, he told a visiting physician, “The desire to take medicine is one of the greatest features which distinguishes men from animals.” Thirty years later, the doctor was still talking about it.

Welles’ father, Richard Welles, was a businessman and, in a small way, an inventor. He designed an improved automobile jack, but his son romanticized him as the true inventor of the automobile. Orson’s mother died when he was 9, and Richard, always a heavy drinker, became a sort of Champagne Charlie, a man of nightclubs and of the flesh.

When Welles was 11, he entered the Todd School in Woodstock, Ill. The headmaster, Roger “Skipper” Hill, and his wife became substitute parents. “Roger Hill’s Todd School provided the hothouse in which Orson Welles’ exotic talents bloomed,” Callow writes. “It was a stroke of destiny that put the boy into that school at that moment.”

At Todd, Welles discovered directing. Other schoolboys had staged plays, but not on this scale. At age 12, “[Welles] had a clear conception of the unifying role of the director, an idea which had not yet taken root in America,” Callow writes.

At 16, Welles went to Europe to pursue painting. Atop a donkey, with sketchbook and palette, he wandered the Irish countryside, stopping in Dublin, where he talked himself into leading roles at the Gate Theatre. Two years later, he was touring with Katherine Cornell.

Despite his heady accomplishments, Welles continued his wild fibs, claiming that in Morocco he spent a few weeks in the Atlas Mountains as a guest of Thami el Glaoui, the pasha of Karrakesh. Roger Hill called Welles “a magnificent Munchhausen.”

Welles had announced himself a prodigy at such an early age that at 19, he seemed late delivering on his promise. Then John Houseman entered his life. Born Jacques Haussmann, a Romanian-Anglo Jew raised largely in Paris, he was educated in England and retained a public school accent all his life.

Although he was less happy at Clifton than Welles was at Todd (neither went to university) both men were marked for life by their schools. As a young man, Houseman had been an international grain dealer. The Depression put an end to that, sending him into the theater. Callow traces the personal nature of the partnership, drawing on interviews with Houseman, who died in 1988, and on “Run Through,” the first volume of his memoirs.

Their first great success, for the Federal Theatre Project, was Welles’ adaptation of what was called the voodoo “Macbeth.” Set in Haiti, it was performed in Harlem by a black cast to great acclaim. It was clear that a director like no other had arrived.

On the heels of their success, Welles and Houseman formed the Mercury Theatre, which Houseman called “our mad plan to start a classical repertory theater in the heart of Manhattan’s commercial theater district.” A challenge in all theatrical biography is evoking stage productions of the past. Callow manages to apprehend Welles’ and the Mercury’s spirit and style.

From his earliest days, Welles didn’t hesitate to shape and orchestrate classic texts. He valued theatricality and magic over psychological subtlety, always more Max Reinhardt than Stanislavsky. The most influential Mercury production, the modern dress “Julius Caesar,” was set in fascist Europe with lighting that evoked the Nuremberg rally. Such dazzling ideas were not always at home on Broadway, and the Mercury’s finances were precarious.

Welles and radio soon discovered one another. With his famously rich voice, he was the Shadow, asking, “Who knows what evil lurks in the heart of man?” Welles was in such demand on radio that he usually worked several shows at once, often not knowing the character he would play until he hurried into the studio and was handed his pages.

Radio made him solvent, and his broadcast of “The War of the Worlds,” done as a live newscast in 1938, made him infamous. Welles spent faster than he earned. He married Virginia Nicholson, whom he had met in summer stock, and was soon to be a father. He had big appetites--for food, drink, ballerinas and Dolores Del Rio, but most of all for publicity. It was like fuel to him. He seemed to run on it.

In 1939, when Hollywood was at its zenith and Welles was routinely called a genius, he accepted a lucrative offer from RKO and went west. He and Houseman were on the outs at the time, though Houseman soon followed. Callow, as others have, points out that a romantic air runs through the language that Houseman uses to describe Welles in his memoirs. Callow doesn’t say that Welles and Houseman were lovers--nor, though the question clearly interests him, does he offer the more likely view that they couldn’t bring themselves to be lovers. He does offer a few episodes of homosexuality for Welles.

At RKO, Welles got interested in the life of the newspaper magnate William Randolph Hearst. The result, of course, made when he was 25, was “Citizen Kane.” Welles’ great movie was also the source of a blot on his reputation--the feud with Herman J. Mankiewicz over the writing credit. Mankiewicz had been a newspaper man, a drama critic for the New Yorker and, eventually, a screenwriter. He was a notorious wit who once sent a telegram to Ben Hecht, urging him to come to Hollywood: “Millions are to be grabbed out here and the only competition is idiots. Don’t let this get around.”

What has long been established is that Mankiewicz, who wound up sharing credit with Welles, was fundamental to the film. He had been a guest at San Simeon and had been considering the life of Hearst for years. With his leg in a cast from an accident, Mankiewicz went up to Victorville to write his script with a nurse, a stenographer and Houseman, who edited the pages as they came.

In three bed-ridden months, Mankiewicz produced a 325-page first draft called “American.” Welles made changes and additions and certainly put his stamp on the script. He wanted sole credit. By the rules of today’s Writers Guild, it’s doubtful he would have qualified for any script credit, but Mankiewicz had accepted a bonus and had agreed the credit was to be Welles’ alone. He changed his mind when he realized how potent the production was. It’s a debate that won’t be settled here, but Callow sees it, persuasively, as a matter of attempted theft. There was little honor in it on either side.

“Citizen Kane” was innovative without being entirely original. For example, the celebrated deep-focus photography was hardly new. Jean Renoir, for one, had used it in the 1930s. But Welles added theatrical lighting and German Expressionist angles. He made it new.

Hearst tried to keep the picture out of release, but the critics rose to the occasion and “Citizen Kane” is still very much with us, untouched by time, while Hearst is as forgotten as his newspapers.

Welles is often seen as the embodiment of F. Scott Fitzgerald’s remark about their being no second acts in American life, though a career that would later include “The Magnificent Ambersons,” “The Lady From Shanghai” and “Chimes at Midnight” can hardly be called failed. For the horror of Welles’ ever-growing weight and the indignity of a great artist touting lousy wine on TV, we will have to wait for Volume II of Callow’s vivid and knowing biography.