When Oscar Wilde died at the age of 46 in November 1900, his parents, his wife and his brother Willie were all dead and his sons were disguised under the name Holland. There was one Wilde still alive, however: Willie's daughter Dorothy Ierne, born five years before, in London. Oscar, newly imprisoned, contrived to send her £50. Forty-six years later, with impeccable timing. Dolly died in her London flat.

During those 46 years, she burned with as gem-like a flame as any that Oscar warmed himself by, living chiefly in Paris, tracing the Left Bank streets that were once her uncle's, and having much the same impact on literary circles as Oscar. Unlike him, however, she put both her genius and her talent into her life: she left no work.

That genius and talent are now revealed for the first time by the American playwright Joan Schenkar in Truly Wilde: The Unsettling Story of Dolly Wilde, Oscar Wilde's Unusual Niece, published fittingly by Virago. I meet Schenkar in her hotel room in Soho: like her subject, she gravitates naturally towards bohemian quarters and sees herself as a wandering artist, regretting only that she cannot move her library with her.

Does she see Dolly's life as a one-woman show? "I was drawn to the theatricality of Dolly's life and her creation of her own identity as the other Wilde," she replies.

Like her uncle, Dolly's passions were for those of her own sex, but chosen from a rather superior stratum of society. Her chief lover was the salonniere Natalie Clifford Barney, who for decade after decade collected writers and artists at her house in the rue Jacob, and whose inner circle included all the great Paris-American and French lesbian women of her time.

Dolly also managed a brief affair with Alla Nazimova, who played Salome in the 1922 film. As Dolly bore an astonishing physical resemblance to Oscar, this must have been an uncanny experience for Nazimova.

It was the happy thought of trying to discover if Natalie Barney's housekeeper was still alive that started Joan Schenkar, then living in Paris, on the quest that has resulted in her now possessing much of her source material. As she interviewed very ancient ladies, she realised she was forming their link with the future. This, she thought, called for no conventional biography, "with facts chronologically strung out like washing on a line". Instead, she has produced a series of vignettes, recreating the world in which Dolly rubbed, let us say shoulders, with Djuna Barnes and Nancy Cunard, with Jean Cocteau and Cecil Beaton, with Osbert Sitwell and Nancy Mitford and Mina Loy. (Loy was a distant connection: she married Arthur Cravan, once called Fabian Lloyd, the nephew of Constance Wilde.)

But above all, Dolly was truly Wilde in one of the senses of Joan Schenkar's title. Not only did she look like her uncle, she once said: "I am more Oscar-like than he was like himself." Oscaria, she sometimes called herself and in 1930 she appeared as Oscar at the Duchesse de Clermont-Tonnerre's costume ball.

Oscaria was the name of the memorial volume that Natalie Barney produced for a friend, with contributions from many who loved Dolly. These did not include Vyvyan Holland, however, Oscar's surviving son, who seems positively to have regretted her existence - the woman, indeed the homosexual woman, who bore his father's name and features. This was, to be sure, before Vyvyan came to terms with his inheritance and wrote Son of Oscar Wilde; but the measure of how far Vyvyan travelled is that when Dolly died and he was assumed (incorrectly) to be her heir, he sold the pictures of Sir William and Lady Wilde that Dolly had inherited from Willie Wilde.

All this Joan Schenkar recounts perched on the end of her hotel room bed, smoking small Dutch cigars called de Wilde. I ask about her style: her occasional capitalisation of the initial words of phrases like "Dull Waters of Daily Life", her inclusion of Natalie Barney's recipe for Poulet Maryland, her occasional indulgence in such remarks as "she looked as full and as delicately flushed as a bouquet of white peonies, miraculously delivered from a sweeter season and a more exotic country."

Joan Schenkar, who as a playwright has an ear for a telling phrase, and as a history graduate has a taste for the recreation of period flavour, explains she planted sentences like these to indulge her enthusiasm for sharing Dolly Wilde's own zest for life; just as she occasionally reminds the reader (and the interviewer) that she does understand critical theory and gender discourse, but knows when not to use them. She sees herself as more a composer than a biographer in the strict sense, a composer upon whom chance or fate has laid the task reclaiming Dolly Wilde from the shadows.

Such playfulness also derives from her subject's own ambiguities. Dolly lived life to the full, but had a destructive urge (four suicide attempts, and her death from drugs perhaps deliberate). She was proud of being Irish, but - unless her schooling was in Ireland (it is not certain where she was sent to board) - does not seem to have visited the country. She acquired an Irish accent as her uncle shed one; and she was Oscaria Wilde whose company was unsought by Shaw or Beerbohm, by Robert Sherard or even Richard Le Gallienne, also living in Paris and writing on a desk he bought from Oscar's room in the Hotel d'Alsace.

Recreating the world of Dolly Wilde, Joan Schenkar does not, however, allow her enthusiasm to outrun her judgment. The Bright Young Things seem a little tarnished now, and at the time they were more hedonistic, less creative, than their predecessors, dubbed by Ms Schenkar as "the children of Walter Pater and Sappho".

Since the Roaring Twenties are now undergoing one of their periodic revivals (we are perhaps a little weary of the fin-desiecle), it has fallen to Joan Schenkar to provide a remarkable addition to the literature of the time, a revelation of a world where the chief accounts have been the now rather elderly biographies of Natalie Barney (George Wickes, 1976), Romaine Brooks (Meryle Secreste, 1976) and the Princesse de Polignac (Michael de Cossart, 1978).

"Dolly loved the truth," says Schenkar. I walk blinking out into Frith Street, happy to have met one vivid woman who has written a vivid book about another.

Truly Wilde: The Unsettling Story of Dolly Wilde, Oscar's Unusual Niece by Joan Schenkar is published today by Virago at £20 in UK

David Rose is writing a PhD on he Paris of Oscar Wilde at Goldsmith College, in London