It is the fairy tale of Chang Er as you've never heard it before: when the 10 suns decide to party, they do so with crisps, beer and cheese balls; when people on Earth feel the heat, they complain about global warming; and rather than being the hero, Ho Yi, Chang Er's husband, is a cruel emperor who raises taxes and gags the press.

The traditional tale of the lady living on the moon has been adapted by the shadow puppeteers of New York-based Chinese Theatre Works. The story, scripted by the troupe's co-artistic director Stephen Kaplin, recently attracted an audience of 200 to a performance at the American Museum of Natural History, in New York.

The puppets are manipulated by Kaplin's Taiwanese-born wife and co-artistic director, Fong Kuang-yu, and several mainland-born college students, using a projector in front of the screen rather than hiding everything behind it, as per tradition. At the end, audience members are given the chance to play Chang Er, by using an Xbox-Kinect-style computer animation programme that allows them to manipulate the puppets on the screen by moving their own bodies. It's perhaps the first attempt to use modern video-game technology to stage a Chinese shadow-puppet show.

Shadow puppetry, which uses flat, articulated figures to represent humans and other objects, has a history in many Asian countries. It took root in China during the Han dynasty (206BC-AD220). The story behind the New York marriage of traditional and very modern storytelling techniques is as intriguing as the show itself. And it is one that spans several generations.

Yang Yang, the 24-year-old designer of the show's 3D Chang Er, represents the latest chapter. Two years ago, Yang left China to study interactive arts at the Pratt Institute in New York, and heard about Chinese Theatre Works last June.

"Many young people like me have never seen shadow-puppet performances, even in China. I couldn't believe that in New York there were people doing performances regularly," he says. It didn't take long for him to join the troupe.

Yang remembers the old-style houses with paper cutouts in the windows and the folk operas he grew up with in Ganzhou, Jiangxi province, but he is aware many traditional arts have fallen by the wayside in China's drive to modernise and that young Chinese often admire Western culture more than they do their own.

"I remember talking to my cousin [who was in] primary school, about the Monkey King and Spider-Man. When I asked him, if the two had a fight, who would win, he said, without hesitation, 'Spider-Man'. My generation of Chinese always think of the Monkey King as an undefeatable figure," says Yang. "This made me worried. If we don't try to revitalise traditional Chinese stories, the younger generation will soon forget them.

"And using hi-tech to promote traditions is the best way to appeal to today's kids."

For his graduation project at the School of Animation of the Communication University of China in 2010, Yang and some classmates made a 3D animation about the origins of the Lunar New Year. It attracted more than 160,000 views online, won them several awards and made Yang feel more confident he was on the right track. In New York's shadow puppets, he saw an opportunity.

"The interactive e-puppets won't replace traditional puppets, but they can play a role as a special effect in movies and attract a broader audience," he says.

When he proposed his idea to Kaplin and Fong last July, the two were excited.

"Shadow puppetry is thousands of years old and it doesn't require much technology. But technology has been developing very fast in the past 10, 15 years," Kaplin says. "We've been trying to think how to make it work for these young kids, who grow up with the technology."

Kaplin, 55, has designed or built puppets for a number of Broadway shows, including The Lion King. Fong, 57, trained as a Peking opera singer. The couple are devotees of traditional arts but they are not conservative when it comes to innovation.

Not long after she came to the United States to study educational theatre at New York University, in 1983, Fong met American puppeteer Jo Humphrey, who had founded the Yueh Lung Shadow Theatre, the only organisation devoted to Chinese shadow puppets at the time. Fong began translating for Yueh Lung before going on to participate in its performances. The arrangement continued even after she founded her own Peking opera performance troupe, in 1990. When Humphrey retired, in 1998, Fong was seen as her natural successor.

But she hesitated. "I had my own organisation," she says. "I didn't know whether I could handle two at the same time."

Kaplin changed her mind.

"I told Kuang-yu that Jo's mission was similar to ours, and the shadow-puppet figures were such a treasure," says Kaplin. "We had the means and the knowledge; if we didn't do it, who would? They'd be lost."

So Fong said yes to Humphrey, with a proviso: she wanted the freedom to do performances her own way.

"The traditional way was just not challenging enough for me," Fong says. "I needed something new."

Kaplin began to design the figures, write the scripts and train the performers. In the first year, Fong was only able to pay him US$100 per month. He adapted a projector and placed the puppets and the performers in front of the screen.

"There was a practical reason" for the innovation, says Kaplin. "When the shadows are projected from behind the screen, you need to be on a stage that has at least 10 to 15 feet behind the screen. It is difficult when you have a stage that doesn't have much space.

"Also, when we did it in the traditional way, I found younger people didn't understand what we were doing. They thought they were watching cartoons."

By bringing the backstage to the front, they changed the dynamic in the theatre.

"This way, there is no secret. Sometimes, kids crawl over our shoulders to see how we make the puppets move," Fong says.

Humphrey is not enthusiastic about the new performance style. She hasn't seen Yang's 3D Chang Er, but she says that to perform in front of the screen is a distraction for the audience. Then again, she dislikes James Cameron's 3D blockbuster Avatar, too.

"Maybe I am too old," says Humphrey, 85. "I've seen a lot of experimental stuff. The problem with new technology is that, many times, they don't develop the script. They overshadow the arts."

It could be argued that Humphrey was quite the innovator herself, though. After all, she figured out how to put on shadow-puppet shows at a time when Chinese authorities were burning puppets and sending puppeteers to labour camps.

Humphrey became hooked in 1974, while working as a curator for the American Museum of Natural History. She was asked to exhibit a collection of Chinese puppets from the 1920s.

"Some people who went to see the exhibition asked me where they could see a performance. But it was the Cultural Revolution in China; we couldn't go there. So I decided to do it myself," she says.

She spent six months copying and duplicating puppets from the museum's collection and studying performances from books and old Chinese films; then, in 1975, she founded Yueh Lung and began to perform.

In 1982, Humphrey paid her first visit to China, to talk to puppet performers. "I didn't know whether I would find any, but I did. I was very happy."

Unlike Humphrey, who had been using incandescent light in her performances, Chinese puppeteers were using fluorescent light.

"The problem with fluorescent light is it doesn't cast shadows. It illuminates the screen but you have to have the figures directly behind the screen for the shadows to be seen," says Humphrey.

Later, Chinese puppeteers told Humphrey they learned this from her.

"A number of companies did perform again [in the mainland] after the Cultural Revolution," says Humphrey. "Possibly, knowing somebody in the West was interested was encouraging."

Still, Humphrey was not the first American to perform shadow-puppet shows in her homeland. In the 20s, Pauline Benton, who, while visiting family in Asia, travelled to Beijing, took a shine to Chinese puppetry and studied performances of it. Benton returned to the US with hundreds of puppets she had had made in China, and in the 30s she started Red Gate Shadow Players, the first shadow-puppet troupe in America. She produced performances for 35 years.

Humphrey never met Benton, who died in 1974. But in 1991, she received a box from Benton's best friend, Mercina Karam, who was dying from cancer. In the box were Benton's puppets, which she had wanted to give to someone who would appreciate them. Now the figures are kept at Chinese Theatre Works - and they became the inspiration for Yang when he designed his 3D figures.

Yang is one of a few Chinese college students who have joined the troupe in the past two years. Their participation thrills the older artists, who had previously relied on American puppeteers.

"It is a Chinese tradition. It should have younger Chinese to keep it going," says Humphrey.

"I hope one day, one of them wants to take over the organisation and hold the torch," says Fong.

For Yang, it is a little too early to think about that. For now, he is focusing on further developing his software for shows in the summer, when the audience will be able to manipulate not only the movements of the 3D figures but also their conversations.

"First I want to help to attract more of an audience for shadow puppetry and make it popular here," says Yang. "Shows on Broadway can be so hot they can charge US$100 for a ticket. I don't see why shadow puppets can't be like that in the future."