Back in the 1980s, Disney commissioned a sequel to The Wizard of Oz which was as scary as it was unconventional. Released 40 years ago this week, it was a box office failure, but has since become a cult classic.

The films we watch as children often leave the deepest marks. Walter Murch's Return to Oz (1985) has a reputation as being one of the scariest children's films of the 1980s. A sequel to the beloved 1939 musical starring Judy Garland, which was released in the US 40 years ago this week, it is notorious for traumatising young audiences and is jam-packed with creepy images, from Dorothy Gale getting trapped inside villainess Princess Mombi's chamber of disembodied heads to the Wheelers, a pack of cackling creatures with wheels for feet – and that's just the Oz scenes. Shockingly, the opening sequence has young Dorothy being sent to a psychiatric clinic to have her memories of Oz obliterated by a sinister doctor. While the initial critical reception was mixed, and the film flopped at the box office, it has become a cult favourite over the years, arguably because of this surfeit of nightmare fuel.

An Academy award-winning sound designer and respected editor, Murch had worked on some of the most notable films of the 1970s including THX 1138, which he co-wrote with George Lucas, American Graffiti, The Conversation and Apocalypse Now, but had yet to direct his own feature, when Disney – which was undergoing significant changes in management in the 1980s – approached him to make something with them.

Murch already had an idea in mind: a sequel to the MGM classic The Wizard of Oz, but one more faithful to L Frank Baum's books. Murch had grown up on the Oz books. His mother loved them, and they were the first novels he can remember reading. Disney, it transpired, had the rights to them, which came as a surprise to Murch – but they expired in five years, which meant they needed to move quickly.

The script, which Murch co-wrote with Gil Dennis, is a composite of two of Baum's books, Ozma of Oz and The Magical Land of Oz. Instead of 16-year-old Garland, they cast the nine-year old Fairuza Balk – who as an adult would go on to star in the likes of The Craft and American History X; she was the same age as Dorothy in the books. The film would not have the vaudevillian sheen of the original. Crucially, it would not be a musical, but rather something more grounded. The look of Dorothy's famous travelling companions the Scarecrow, Tin Woodman and the Cowardly Lion, who spend most of the movie turned to stone until they're brought back to life at the end, is inspired by the original illustrations rather than the 1939 film, while the only notable holdover from that production would be Dorothy's iconic ruby slippers – the slippers are silver in the books – which they had to pay for the rights to use. "Of course, I knew this was a risky endeavour, because people had such a strong feeling about that film," Murch tells the BBC. "I didn't want to tread on its toes. When you say, here's a sequel to that film, certain expectations pop up."

Much has been made over the years of the film's darkness. Murch combines elements of 19th-Century fairy tales with a more realistic vision of life in rural Kansas in 1890 – though as he points out, if you strip away the songs from the original, it's pretty dark in itself. For a time, Murch was in conversation with Maurice Sendak, author and illustrator of Where the Wild Things Are, to do the production design for Return to Oz and Sendak talked about how the 1930s film terrified him as a child.

The film picks up where the original left off. Aunt Em and Uncle Henry are trying to repair the damage the tornado did to their farm, while Dorothy has become an insomniac who keeps talking about her journey to Oz.

For many viewers, the early scenes, in which Dorothy is taken to a clinic to receive electric therapy from the sinister Dr Worley, played by renowned Shakespearean actor Nicol Williamson, are the most disturbing. Murch was inspired by the 1890s mania for electro-therapies. On the cusp of the........

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