As a journalist, Berendt knew that good real-life stories were difficult to find. So, after a couple of years of deliberation, he decided he'd have to find a place that offered the same literary possibilities as America's Deep South. Skimming through an atlas and his list of contacts, he decided to move to a city whose mysteries have inspired writers for centuries: Venice, also known as the city of falling angels.

'I wanted to write another book, but I couldn't think of a story,' says Berendt. 'So, I tried to figure out what I liked about my first book. I decided it had unbelievable characters and a wonderful sense of place. Savannah is totally cut off from the outside world - the residents don't even go to Charleston, which is only an hour away. That gives it a special kind of charm. But where could I find another place with that kind of magic?'

The answer, he decided, lay far from the US. 'Venice is also a world unto itself - inward-looking, cut off from the outside. Savannah and Venice are very different places, but they're both steeped in their own history, culture and rituals. They're both magical, isolated cities. I realised that I could find the escapist quality I was searching for in Venice.'

In spite of its beauty and culture, Venice is a tough assignment for a writer. So much has been written about the floating city that it's difficult to be original. Early on in The City of Falling Angels, Berendt quotes Venice Observed writer Mary McCarthy's comment on the literary exhaustion of the city: 'Nothing can be said (including this statement) that has not been said before.'

Berendt goes on to list some famous works set in Venice - Death in Venice, The Wings of the Dove, The Aspern Papers, Don't Look Now and so on. But Berendt wasn't easily disillusioned, and his journalistic experience helped him find a new angle. 'The main characters in all these stories, and many more besides, were neither Venetians nor resident expatriates,' he says in The City of Falling Angels. 'They were transients. My view of Venice would focus on people who, for the most part, lived there.'

As he did in Savannah, Berendt planned to integrate himself into the daily life and rhythms of Venice, and allow a story about its residents to reveal itself.

This was a challenge. Even though Berendt was friends with a well-connected Venetian family, becoming accepted by the locals wasn't going to be easy. This city of winding canals, shuttered houses and narrow streets has a long-standing reputation for secrecy.

'Originally, Venetians would only invite close friends or family inside their homes,' Berendt says. 'They met everyone outside. That has changed. But it's not a particularly open society. They're not stand-offish, but they're reserved.'

Berendt networked with an energy borne of necessity. 'I had to be more than a tourist to write my book - I had to get inside the daily life of the people. My friends introduced me to people, they introduced me to others, and it built from there. I finally got inside the invisible door between the Venice that the tourists see and the Venice which its inhabitants see. I got inside the private Venice.'

The City of Falling Angels is the record of Berendt's journey into this private Venice and the various Venetians and expatriates he met while carrying out his research. As with Midnight, the new book essentially is his research - ordered, personalised and bound together by a novelistic structure. Recorded conversations, intimate observations and reminiscences mesh with historical facts to create a panorama of modern life in the ancient city. Much of the time, these long wedges of facts and information make it a dense read. But some of the characters manage to pique the imagination.

In his first book, Berendt presented an array of eccentrics, including a cheery drag queen and a would-be poisoner who taped insects to his head. In The City of Falling Angels, he discovers an American who simulates space rocket launches in his living room, and a Venetian aristocrat who's an authority on rats. Berendt is proud of the eccentrics he's discovered. He could never have created them himself, he says. 'I couldn't have made these people up, even if I'd wanted to. I just wouldn't have had the nerve.'

Berendt, who had only a basic grasp of Italian, would either use a bilingual assistant to converse with his subjects, or record the talks and translate them later. 'My depictions are absolutely accurate,' he says. 'Take the Rat Man of Treviso. Who'd have thought that someone would know so much about rats? But it's true, he does. These characters are similar to those in my first book, who were also really over the top. They had an ironic sense of humour - an ironic sense of life - in Savannah which I've never encountered anywhere else. But I found some equally unusual people in Venice.'

Berendt says he's a good listener, and that's why people are happy to tell him their stories. He says he sometimes has to tell some secrets of his own to persuade them to open up, but if someone tells him something off the record, that's they way it stays.

He had to be more patient with the Venetians than the inhabitants of Savannah. 'People in America's South are very demonstrative. They love to be eccentric - in fact, they encourage it. They love nothing more than to talk about each other for entertainment. They love to gossip. Eccentrics know that they're appreciated because people are constantly talking about them. That encourages them to be even more eccentric.'

The 12 years he spent editing Esquire, plus a further two editing New York magazine, taught Berendt how to recognise someone with a good story. He's always been interested in people, he says, and wanted to be a writer as far back as he can remember. His mother wrote a novel in 1951, 'and since then I've always thought that a writer is the greatest thing to be'.

He took a degree at Harvard and then moved to New York to do a masters in English literature at Columbia University. In New York he began writing for magazines - 'magazine articles can be very like short stories' - and he continued to file a column for Esquire during the four years he was in Savannah writing Midnight.

A note at the end of Midnight says he used some pseudonyms and took some 'storytelling liberties', but there's no such admission in the new book. Berendt says the way his writing mixes facts with personal impressions is due to his love of what was once dubbed New Journalism. This is a style of reporting invented by writers such as Hunter S Thompson, Norman Mailer and Tom Wolfe - who coined the term - in the 1970s.

'It's non-fiction, but it uses the literary tools that fiction writers use,' says Berendt. 'Things like extended dialogue, setting the scene and a progression of action, tension and suspense from one part to the next. It's more creative than simple flat journalism. It's very often told in the first person, so the journalist becomes part of the story. Plus you explore the personalities of the people you're writing about. Instead of just showing up, interviewing people and leaving, you try and live with them.'

Although Berendt exposed some home truths about Savannah in Midnight, he's well liked there and was back recently. 'I'm welcomed as a local hero - I always have been,' he says. 'I can't walk anywhere in Savannah without somebody waving or calling out to me. My book made the place into a bit of a tourist destination, and they're happy about that. They think that when The City of Falling Angels comes out, there's going to be a renewed interested in them, because people are writing articles.

'In the years since I wrote Midnight, there's been a definite upturn in tourism. Money has flowed into the place and businesses have started to appear. The main street used to be half deserted and the store fronts were boarded up. But it's thriving now. People there feel that I played a part in all that.'

Berendt doesn't expect the same kind of response from Venice, although not because of what's contained in the book. Venetians who've read The City of Falling Angels have no problem with its revelations, he says. 'I won't get that kind of effect from the new book. A book about Venice isn't really an unusual event. My book may have a different angle to most, but there have still been lots of other books written about Venice. Midnight was the first book ever written about Savannah and that's a reason they paid so much attention to it there. They were excited that someone was writing a book about their city.'

Berendt says he's taking a rest from writing although he's been kept busy promoting his book. He doesn't mind doing interviews. His only worry is that 'when I write a book, I can go back and edit it. But what I say to you will be published as my first draft.'

He has no plans to write a third volume. He says he locked himself in his study for a year to work up his notes from Venice into a book, and is now looking forward to some free time. Then there's the worry of finding a new location to inspire his brand of creative reportage.

The City of Falling Angels (Hodder & Stoughton, $290)