There are several explanations for the spontaneous and sustained applause that greeted Pablo Larraín's fourth feature, No, when it premiered at Cannes. Most obviously, it was a delighted reaction to a delicious story, that of the 1988 referendum in which Chileans voted No to the proposition of eight more years of General Augusto Pinochet. Doing so in their millions, Chileans turned democracy against the turncoat dictator who had ruthlessly destroyed President Salvador Allende's dream of democratic socialism and scythed down the flower of Chilean youth. The applause that rippled the screen at Cannes (where No won the prestigious Directors' Fortnight Art Cinema award) must have been underpinned by the deep sense of joy that wells up within at the exhilarating, if all too rare sight of justice being done.

At its simplest, No is an affirmative, uplifting fable in which good triumphs over evil, right over might, freedom over tyranny, and hope over fear. When the Pinochet junta proposed a plebiscite in an attempt to gain international legitimacy, few Chileans believed their votes would be fairly counted, let alone actually count. Fewer still foresaw an immediate end to the barbarous regime that had ruled Chile by force of arms since the US-backed military coup of 1973. And yet the referendum was, to paraphrase Dylan Thomas, the democratic goose's quill that peacefully put an end to murder that put an end to talk: it ended 15-years of despotic rule, consigned Pinochet to the dustbin of history, and closed the darkest, dirtiest chapter in Chilean history. Despite censorship and intimidation, despite being outspent by thirty-to-one, against all odds, the No campaign won the day to end to a period marked by murder on an industrial scale.

No, then, feels like a film with a fairytale happy ending designed to melt the hardest heart and draw cheers from even the most blasé of critics. That enthusiastically raucous ovation also honoured a filmmaker who had put the stuttering false start of his debut feature, Fuga (2006), behind him and grown in stature with each successive film in his subsequent Pinochet trilogy. The applause that greeted No in Cannes was more than just a resounding endorsement of a film full of humanity, humour and verve; it also served as belated, guilt-tinged recognition for the startling originality of the undervalued first films in Larraín's triptych: Tony Manero (2008) and Post Mortem (2010). It may also have been tinged by a sense of grateful relief that Larraín has replaced the unremittingly sombre mood of those films with the lighter, brighter tone of No.

Set in Santiago in 1978, Tony Manero centres on Raúl Peralta, a 52-year-old desperado played with mesmerizing force by Alfredo Castro, the actor and theatre director Larraín describes as "The Antonin Artaud of Chile." Raúl's single-minded fixation with Saturday Night Fever and Tony Manero, the man in the white suit immortalized by John Travolta, careers out of control with murderous consequences. Travolta's Tony Manero struts the streets like the cock of the walk he is, while Castro's Raúl hugs the walls of back alleys like a rodent. It is a telling comment on cultural imperialism.

Post Mortem is also set in Santiago, in this instance during the watershed year of 1973 (the year of the Pinochet coup and the deaths of the three great Pablos: Casals, Neruda and Picasso). It focuses on another pallid, nihilistic loner played by Alfredo Castro. Mortician Mario Cornejo, like Raúl Peralta, stakes his all on achieving his goal. He, too, risks one last desperate throw of the dice; he, too, ultimately kills without compunction. In presenting dark portraits of damaged individuals in thrall to pathological obsession, these films pass metaphorical comment on a society gone mad. They show how fascism warps individuals by engendering a pervasive mood of mutual suspicion and a distrustful dog-eat-dog amorality, by cheapening human life through calculated cold-blooded murder, and by rupturing the most solid of human loyalties.

No, loosely adapted from Antonio Skármeta's play El Plebiscito, is a different, more mainstream film entirely. Skármeta's best-selling novel about Nobel Laureate Pablo Neruda, Ardiente pacienci, was the source text for his own film, Burning Patience (1983), and for Michael Radford's Oscar-winning film Il Postino (1994). No shares the breezy, upbeat charm of those films. It is as heartwarming as the first films in the trilogy were chilling. In this redemptive crowd-pleaser Larraín moves toward the sunlight, while Alfredo Castro steps back a pace to grant Gael García Bernal the limelight.

Bernal plays an apolitical advertising executive, René Saavedra, who is invited by a respected Socialist politician, Urrutia (Luis Gnecco), to deploy the tricks of his trade to help the No campaign. When we meet him, he is selling a fizzy drink called 'Free', now he is being asked to sell 'Freedom'. René's initially non-committal response is a measure of his youthful arrogance and lack of conviction, but he soon senses career opportunities ahead and accepts. René tells his skeptical new colleagues: "You don't package the candidate, you package the voters." He skillfully steers the No campaign away from its early emphasis on the cold, hard facts of political repression toward a sugary soft-sell strategy that insinuates an abstract idea of imminent happiness for all.

René doesn't have things all his own way. Seasoned political combatants with deep wounds and long memories occasionally overrule him, but his arguments are as persuasive as his enthusiasm is infectious. In the debate between those who see the referendum as a consciousness raising opportunity and those who believe jingles and jollity can win the day, there is only one winner here. And yet, the film crackles with the tension between those competing perspectives: it highlights the ideological and aesthetic differences between René and those, such as his politically engaged colleague Costa (Marcial Tagle) and activist ex-wife Verónica Carvajal (Antónia Zegers), who believe his bubbly ads airbrush the regime's victims out of history, thus erasing them just as Pinochet did.

Verónica is, at first, contemptuous of what she sees as his ignorant, infantile rubber-stamping of a rigged election. She explodes at the artificiality of his ads: "You've got six-foot blond people in the No ads! Are these Chileans? Where did you get them? Denmark? Who are these assholes?" Gradually, though, her contempt turns to admiration as the No campaign seizes the popular imagination and gains ground. The estranged couple have regular contact via their son, Simon (Pascal Montero), and they increasingly reconnect with one another as she comes to see value in his work and as he is politicized by the experience of working on the campaign.

Larraín himself, who directed commercials before he made his mark in film and whose parents are prominent right-wing politicians once active in the Yes campaign, appears to side with René Saavedra. It is clear, though, that he is troubled by the contradictions in that position. The film's inevitable happy ending is muted by its conclusive recognition that the changes achieved by the No campaign are largely superficial, and by René's continued complicity. The debate about marketing has profound implications for the film. It also raises important questions about the way dreams are constructed in capitalism, the nature of democracy and social change, the importance of memory and the responsibilities of cinema, and the blurring of fact and fiction. The further we move from participatory politics, the more the democratic deficit grows. Larraín's suggestion that it was the No campaign's daily 15-minute TV advertising slots – all rainbows and smiles, sunshine and song – that secured democratic change will be contested by those who think the truth is more complex and all who believe that political agency is not, and never should be, contingent on the whims of advertising agencies.

As I write, it's even more tempting than usual to describe advertising as "the indefensible selling the inedible," but even those who regard it as a sordid racket must concede that marketing matters nowadays, in film as in politics. Larraín deserves the widest possible audience, so we must hope No sells, and is sold well. Larraín has said: "We live in a supermarket today, and if you want to have a decent education you have to pay a lot of money. If you want to have good healthcare, you have to pay a lot of money." He might have added, "If you want to have good cinema, you have to pay a lot of money." In this context, we must be grateful for Bernal. He is a bankable star well cast as a sharp salesman. The film's winning combination of light and shade, nostalgia and trauma, humour and seriousness relies upon him.

René is as ambivalent and ambiguous as the film itself and Larraín himself. While René is involved with the No campaign, he is simultaneously producing a commercial for a tawdry soap opera. We peer over his shoulder and rediscover microwave technology through his eyes. We peek through curtains with him, alert to the threat posed by DINA agents. René's boss, Lucho Guzmán (Castro), sits on Pinochet's advisory board and skulks around furtively like a man with a guilty conscience, while René skateboards down the middle of the road. Bernal radiates boyish charm and wholesome vitality as effectively as Castro emanates seedy malice and anæmic bile.

A series of unflinching virtuoso performances make the brutish scenes of sex and violence in the first films in the trilogy seem all too real. Here, Bernal's superb performance complements the equally impressive work of the supporting cast. Pablo Larraín brings the best out of his actors. He is a charming, easy-going guy and replicating the camaraderie in the No camp must have come easily to his cast and crew. Larraín's films, like those of Robert Guédiguian, benefit from an on set atmosphere of relaxed cooperation arising from regular use of the same established actors. Amparo Noguera, for instance, played both Raúl Peralta's nominal girlfriend, Cory, in Tony Manero and Mario Cornejo's lovelorn colleague, Sandra, in Post Mortem. In No, Alfredo Castro (who appears in each of Larraín's four features) plays René's boss; Marcial Tagle (who has also appeared in all Larraín's films) plays his campaign colleague, Costa; and Larraín's wife, Antónia Zegers (who starred as the object of Mario Cornejo's obscure desire in Post Mortem) plays René's estranged wife. No is a family affair in more ways than one: the director's brother, Juan de Dios Larraín, is part of a production team that includes Pablo Larraín, Jeff Skoll and Jonathan King – who will watch this year's Oscars ceremony attentively, as executive producer of two nominated films: No and Lincoln.

While the presence of Castro, Tagle, and Zegers in the film will have come as no surprise to those who've followed Larraín's progress, the same cannot be said of the appearances of Richard Dreyfuss, Jane Fonda, and Christopher Reeve. Their statements in support of the No campaign sit within a wealth of archive footage from the period that intensifies the film's feeling of documentary verisimilitude. No blurs fact and fiction like few other films, for good and ill. It is difficult to see the joins between contemporary and archive images. For Post Mortem, Larraín and cinematographer Jean-Pierre St-Louis achieved a blanched, lackluster light by using the antique, anamporphic Soviet-era lenses once used by Tarkovsky. For No, Larraín and Sergio Armstrong achieve an equally appropriate washed-out, hazy look by filming in 4:3 Academy aspect ratio and by deploying 1983-vintage Ikegami U-matic video cameras. Armstrong was able to track down 20 of those creaky cameras in Utah; from them a Hollywood company formed four working units, each with its own distinct and erratic personality. Larraín says: "Producing this film with analog video cameras is . . . a statement against the aesthetic hegemony of HD." His meticulous approach to 'authentic' visual detailing delivers a riveting, enervating experience. 

Elsewhere, Larraín's drive toward accurate recreation causes certain problems. In Post Mortem, for example, he recreates the autopsy examination of the late Salvador Allende in the actual room, on the actual table used in the immediate aftermath of the coup – with a mocked-up corpse. Setting aside the question of good taste or its absence, that scene, like the look of No, misleadingly suggests we are viewing history as it happens. Of course, we aren't. We are, actually, watching a story 'inspired by true events' (most stories are): a partial, personal account of history with the people taken out. Larraín's trilogy has little interest in ordinary Chileans, which is to say, no interest in those who voted No. In all three films, his real interest lies on the exotic margins of society – in burlesque dancers and desperados, ad men and serial killers. His current project is an HBO TV series, Prófugos, about drug smugglers and cocaine cartels.

Despite its disappointing omissions, Pablo Larraín's Pinochet trilogy, nevertheless, stands as one the most original and compelling achievements of contemporary cinema. Larraín has said: "Post-Mortem speaks of the origin of the dictatorship, Tony Manero about its most violent moment, and No about its end." Patricio Guzmán began the cinematic examination and exhumation of the Pinochet years with his masterpiece The Battle of Chile (1975-79), and he has continued to document Chile's past right up to the present, with Nostalgia for the Light. (2010). But Guzmán long ago ceased to be a lone voice. Chilean cinema is in robust health. Ever since the 'democratic turn', an increasing number of directors have dealt, with ever-increasing directness, with the Allende years and the Pinochet dictatorship. Others will do so in future. No makes an enthralling, thought-provoking contribution to that vital refusal to forget.

We have learned to laugh at those who considered history at an end. Chileans may yet laugh at cynics who tell them radical change is no longer possible. No reminds us that Pinochet failed to kill hope by bringing us closer to a moment it flared up again. It speaks of and to our need for a more meaningful politics in which happiness is more than just an intangible advertising slogan and democracy is much more than a packaged product.

This interview with No director Pablo Narrain was conducted by Timothy E. RAW at the 56th London Film Festival.