The Two Towers leaves off, naturally, with a cliff-hanger, which will be resolved in The Return of the King, the final installment, set for release next year. A rough cut of that movie has already been assembled and is in Jackson's vaults. Producer Barrie M. Osborne is trying to wrangle the cast back to New Zealand for more shooting next summer.

Ask Peter Jackson how Lord of the Rings has changed his life, and he answers, "What life?" For five years, he has devoted himself to Lord of the Rings, always with Walsh at his side. Though they have never married, they share two children (Kate, 6, and Billy, 7) and a rambling old house overlooking the bay in Wellington. They met at a screening of Jackson's first movie, 1987's Bad Taste, a gross-out horror flick about human-eating space aliens. What in the world did Walsh see in the young filmmaker? "I think it was the brain-eating sequence," says Walsh, who was writing for television at the time and shares Jackson's macabre sense of humor.

The two began working together almost immediately. Their screenplay for the brilliantly creepy 1994 Heavenly Creatures, about a well-known New Zealand murder case, earned them an Oscar nomination and put them on Hollywood's radar. Universal soon enlisted Jackson to direct The Frighteners, a 1996 horror-comedy starring Michael J. Fox. It didn't scare up much business, but it did enable Jackson to add a computer division to Weta Workshop, the struggling special-effects company he had formed years earlier with Richard Taylor.

Hoping to make use of the newly enhanced facility, he began musing on the idea of a fantasy film. "I thought, nobody seems to be making those anymore," says Jackson. "Fran kept saying Lord of the Rings was the prototype [for fantasy], and if we can't think of something better, we shouldn't bother. Eventually we came up with the obvious question: What's happening with Lord of the Rings? Why don't we try doing that?"

He and Miramax chief Harvey Weinstein began planning a two-part adaptation of Tolkien's trilogy. Soon, however, Weinstein got nervous about the cost. And Jackson got nervous when Weinstein suggested they scrunch the tale down to just one movie. In 1998 Miramax allowed the filmmaker to shop the project to other studios, but on two strict conditions: whoever bought it would have just 72 hours to repay Weinstein the $12 million he had spent on preproduction costs, and Weinstein had to be guaranteed 5% of the gross.

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