The Eisteddfod by Lally Katz, directed by Chris Kohn, with Jessamy Dyer and Luke Mullins, Stuck Pigs Squealing Theatre, The Store Room, Fitzroy. Until July 11.

The Eisteddfod is like a series of Chinese boxes - a play inside a play inside a play. And what do we find, gentle reader, once we peel back those endless layers of performance? As Peer Gynt discovers with his onion, there's nothing in the middle: just a comfortless question, which happens to be the same as Albert Camus' - given life's tragic absurdity, why don't we just hang ourselves?

In fact, this play provokes a veritable cornucopia of allusions, which is, I'm sure, a good sign - about the production, if not the junkroom of my brain. I found it intriguing both to watch and think over, and its every aspect - writing, direction, design and acting - is characterised by a witty, sardonic intelligence. The Eisteddfod might be subtitled "Kath and Kim meet Cocteau"; it is a kind of Les Enfants Terribles set in surburban Caulfield or Box Hill, the story of a brother and sister who withdraw into an imaginary world where they play out games of an increasingly disturbing eroticism.

Gerture (Jessamy Dyer) and Abalone (Luke Mullins) are orphaned early by a "pruning accident" and subsequently become agoraphobic, creating fantasy lives of a strangely rich banality. Gerture's private world is her career as a German teacher (her name is pronounced, for what it's worth, the same as "Goethe", just as, in a nod to Chekhov, the prize for The Eisteddfod is a ticket to Moscow). Abalone, threatened by his increasing exclusion from her private fantasies, lures her back into their mutual bedroom with his ambition to win the local Eisteddfod by performing Macbeth, with Gerture alongside as Lady Macbeth.

I wondered, given its play-within-a-play format, whether Hamlet might not be a better foil for the action, but this idea is raised and dismissed early on: Macbeth it is, not only for the chance to play off Lady Macbeth's ambition, neatly inverted in Katz's play, but also perhaps for how the sheer bleakness of Macbeth's famous valediction to his wife underlines The Eisteddfod's desolate subtext: "Life's but a walking shadow, a poor player, / Who struts and frets his hour upon the stage / And is heard no more. It is a tale / Told by an idiot, full of sound fury, / Signifying nothing."

In between rehearsals, they play out various erotic roles - their parents' unhappy marriage and, in particular, an abusive relationship between Gerture and her lover Ian, a man who fully deserves the epithet "sleaze". The sexual games circle towards rape, touching a sadism disturbing enough to recall those notorious photos from Abu Ghraib (especially when Abalone dons a balaclava); but like most of the allusions in this play, these connections operate subliminally, flickering darkly beneath the surface sparkle.

And there's plenty of sparkle in this young company's production. Chris Kohn's direction is assured, whipping up a high level of energy from the start by precise shifts of orchestration, helped along with a cheesily bright sound design by Jethro Woodward and Richard Vabre's snappy lighting. Adam Gardnir's design is similarly smart: a raised platform which signifies the bedroom, with useful storage spaces and nifty detailing which permits this tiny space to have a surprising number of defined performing areas. Jessamy Dyer and Luke Mullins handle the shifts from grotesque parody to authentic grimness with a wholly engaging air of innocence, which gives the later shift to darker realities all the more punch. The only time I felt a glitch was in the final duologue, which seemed just slightly - three or four beats - too long.

The writer herself, Lally Katz, makes a couple of appearances as an introductory voice over and as a puppet, which serves to destabilise the already deranged theatrical realities even further. This introduces another level of satire: the vanity (in both senses) of performance itself. As the various layers of performance within the play - the Eisteddfod, the siblings' games, a puppet show - ripple inwards towards emptiness, so the idea that all human behaviour is performance ripples out into reality. The Eisteddfod is not only a mordant critique of the banality of suburban life, but also suggests that all the selves people present, even the most private, are merely surfaces; roles which play us, rather than roles we play. Its irreverent echoing of Cocteau, perhaps the 20th century's most profound artist of appearance, goes much deeper than surface allusion.