Even before I sat down to watch it, I knew of three possible reasons why I might not fully respond to the publicised terrors of Paranormal Activity, an ingenious, micro-budget horror movie that has already taken the US box-office by storm and had audiences screaming in their seats (and trailer makers filming them doing so to assure us that we will do likewise).

1. I don't believe in ghosts, demons, the afterlife, or any of the supernatural hogwash on which this and its ilk trade. This is not necessarily a problem, as my fervent disbelief didn't stop The Exorcist scaring the living shit out of me the first time I saw it.

2. For my money, paranormal reality shows like Most Haunted are modern television at it's most offensively ridiculous. Its creators still peddle the lie that it's all for real – they're selling a product that's making them wealthy, after all – but as anyone with half their wits knows full well, if you take a group of even sensible adults to a strange location at night, feed them with folklore and rob them of their sight, then any sudden unexpected noise or movement is just bound to make them jump a bit, especially if you urgently shout "What was that?!" every time it happens. Just see what happened to the poor unfortunates who took part in Darren Brown's faked séance back in 2004 – even Brown himself was startled by the degree of their terrified reactions. Thus Paranormal Activity's caught-on-camera spookiness is something I've already built up a hostile resistance to.

3. Much as I admired and enjoyed The Blair Witch Project, for its low-budget ingenuity, its originality of approach and the commitment of its performers, it didn't scare me for a second. And I really, really wanted it to. Curiously, there seems to be an age gap thing at work here – it certainly seemed to connect to a younger audience, but I've yet to meet anyone who was over 30 when they first saw it who was remotely rattled. Thus the low budget, looks-like-the-real-thing horror sub-genre is not one I automatically respond to, especially as point 1 means that I know it's all faked even when I'm assured that it isn't.

Even so, as I continue to be unmoved by the growing excess of CGI, I couldn't help but be just a little excited by the prospect of a film shot on a camcorder you can buy at Jessops, and in a single location by the two lead players, who for most of the time are the only people on screen. The estimated budget was just $11,000. To date the film has made well over $100 million. Seriously, what outsider movie fan wouldn't get a secret glow at seeing Hollywood sucker-punched for a second time by a low budget indie horror project?

If you know nothing about the film then good for you. Go and see it without prejudice or preconception and react accordingly. That way you won't have your hopes dashed if you don't like it and will be less prepared for the jolts and plot turns if you do. If you prefer to go in a little prepared of haven't yet made up your mind wither to see it at all then stick with me. My views, as ever, are a personal reaction, but I'll do my damnedest to justify them at every turn.

Paranormal Activity looks cheap, and I mean really cheap, but you wouldn't want it any other way. It's safe to say that the film's effectiveness lies almost purely in its amateur aesthetic – throw money at project and gloss it up in the Hollywood manner and you'd lose the sense of reality that makes it stand out from the supernatural movie crowd. This caught-on-camera look also allows the filmmakers to drastically reduce the scale of the threat without diluting its menace, making a small but inexplicable movement of a bedroom door more alarming than the biggest CG monster you can imagine by selling it as real. An effect is an effect, but while we are blitzed with computer generated trickery on a daily basis (there's hardly a commercial on TV that doesn't employ CG effects in some way), there is still a subconscious tendency to accept the home video format as somehow 'pure' – what we see is what was filmed, so to speak.

Everything is shot on a Sony HD camcorder owned by the couple in whose home the entire film takes place. Boyfriend Micah has bought it to start documenting girlfriend Katie's experiences with what may or may not be supernatural forces. At present this consists only of inexplicable noises at night – bangs on the wall, drawn out scratches – but this is the third time she has been victim of such events, the first of which climaxed in a mysterious fire that destroyed the family house. Katie invites a professional psychic round to advise on the case, and after talking to Katie and getting a feel for the house, he suspects the presence of a demon and points them in the direction of a specialist in these matters. Katie wants to call in the demonologist but Micah is against it, figuring they can get to the bottom of this themselves without the help of a witch doctor, and sets up the camcorder in their bedroom overnight to monitor any untoward activity. Initially the evidence is unsettling but inconclusive, but as the incidents increase in severity, the couple are soon given cause to fear for their safety.

A key thing first-time director Oren Peli gets absolutely right is that he tailors his project to his budget instead of trying to emulate the Hollywood look on the cheap. There's little originality in the content – terrorising characters with the sounds and actions of supernatural monsters they and we never see goes back to Robert Wise's superb 1963 The Haunting – and the found footage horror style has become a respectable sub-genre in itself by way of The Blair Witch Project, [Rec], Cloverfield, Diary of the Dead and the like. But it's in the marrying of the two that the film achieves its freshness, an approach best served by the authentic-looking night-cam footage – as soon as it kicks in you know something's going to happen, which builds an effective sense of "here we go" anticipation once fast-forwarding of the tape drops to normal speed, enhanced by the expectation that whatever occurs will be a step up from the previous encounter. The sounds that disturb the couple's sleep play effectively on fears most of us have experienced at one time or another, a noise in the dark with no obvious explanation that for just a split second convinces you that someone or something is inside your house, climbing the stairs or standing just outside the bedroom door. This play on our fear of home invasion peaks when the couple investigate the latest series of noises and discover that the hatchway to the attic has been disturbed (I once had a long discussion with a friend on whether attics or cellars were scarier to investigate) and Micah attempts to provide physical evidence of the entity's presence by sprinkling talcum powder on the hallway and bedroom floor.

But for every nicely pitched ball there's another that gets fumbled, the chief culprit being the daytime scenes that sit between the night terrors. They start well enough with the arrival of Mark Fredrichs' nicely underplayed Psychic, whose casual questioning provides us with the back-story details, and whose conviction that the haunting is person rather than location specific provides a solid enough reason why the couple don't just leave the house when the going gets tough. But as things deteriorate for Katie, Micah overplays the cynical dufus to the level of credibility-stretching insensitivity, seeing it all as a game and walking from room to room with the camcorder, daring the demon to show itself and getting all alpha male with it for coming into his house and messing with his girlfriend. Tough talk from a man who repeatedly makes light of Katie's fears and goes explicitly against her wishes to procure a ouija board, which is left in front of the camera long enough for the entity to do its expected party trick in a sequence that feels a little too hokey to be as disturbing as was doubtless intended.

Even the night-cam sequences are uneven in their effectiveness, the crucial role played by sound undermined a tad by the use of the on-camera mic and automatic sound levels, which although feel completely authentic make it intermittently hard to work out just what we are meant to be hearing (which may be the point, of course), while the shocks are often telegraphed by a preparatory drop in the level of background hiss. There are also times, of course, when you just don't believe Micah or Katie would have picked up and switched on the camcorder, but this is a regular problem for the sub-genre and one we've had to learn to live with.

It's clearly all building to something, and in one of the creepier night-time incidents, Katie wakes and stands staring at the sleeping Micah for over an hour (an on-screen clock allows us to keep track during the fast-forwarding of footage), a disquieting image that provides the first pointer to what that something will be. For this particular viewer at least, this is the film's biggest let-down, as a supernatural presence leads to a human effect that will be very familiar to horror fans and was even the basis for one of the genre's most iconic modern works, one I can't name without spoiling the ending for those less familiar with, or perhaps more appreciative of, this particular genre strand.

So did Paranormal Activity actually scare me? Not really, though this has as much to do with the film's erratic approach to suspension of disbelief as it does with those three prejudice points detailed at the start of this review. But in spite of my repeated disconnection with the film's sense of reality, I still experienced a few enjoyable frissons of unease during those night-cam sequences, and my admiration for the ingenuity of the filmmakers remained intact to the end. With the right audience – one less cynical about the supernatural (although I'd still encourage you to get cynical about it and question everything those who sell it as real misleadingly peddle) and whose viewing history doesn't already include a plethora horror movies – I can see it working a treat. Certainly the person I saw it with wasn't keen to venture upstairs to the loo on our return to my old, creaky and poorly lit house, but once I'd seen them home I returned to a building that is at times a veritable symphony of strange and occasionally alarming noises and slept like a proverbial log.