When John Durnin began his tenure as artistic director of Pitlochry Festival Theatre in 2003, he arrived with a bucket-load of ambition. It wasn't that Pitlochry was in a state of stasis in any way. Under its outgoing director Clive Perry, the theatre's main stage repertoire had long been considered one of the most solidly impressive in the country. It was of such consistent quality that its diet of classics running alongside more commercial fare easily stood comparison with higher-profile operations on London's west end.

Durnin, however, wanted more. In an interview with The Herald shortly after arriving in Pitlochry from Exeter's Northcott Theatre, he expressed a desire to forge international relations with the Scottish diaspora as well as explore the work of contemporary writers such as David Greig. In an opening season that featured Stellar Quines's production of Judith Adams's play, Sweet Fanny Adams in Eden, playing within PFT's grounds, Durnin's heart was set on branching out even further.

Five years on, and with his latest season opening this weekend, at least some of Durnin's ambitions are on their way to being realised. Opening with Wild Honey, Michael Frayn's adaptation of what is believed to be Chekhov's earliest play, PFT's 2008 season focuses almost exclusively on modern work. As well as Frayn, the presence of Tom Stoppard and Alan Bennett in the season (with Arcadia and Habeas Corpus respectively) showcases a trio of writers with reputations for combining playfulness and craftsmanship with a sleight-of-hand commercialism.

The older works on offer are similarly meaty. Shaw's Heartbreak House and Goldsmith's She Stoops To Conquer may be reliable favourites, but retain a gravitas beyond their immediate light and shade. The most recent play of all, however, shows just how focused Durnin has been on realising his ambitions. David Greig's Outlying Islands was first produced at Edinburgh's Traverse Theatre in 2002. This tale of love on an isolated Scottish island is not only a masterpiece that sits in equal footing with the rest of the programme, but also an elegant bridge between PFT's repertoires of old and its proposed future.

"There's been a big reaction," says Durnin, "both to Outlying Islands and Arcadia. There's been this sense of people saying, my God, that's not a Pitlochry play. In that way we feel like we're beginning to break new ground. The past couple of years have seen PFT take some fairly big strides in terms of developing the repertoire. Where previously things may have been leavened by lighter fare, what we've got now is an extraordinary range of work by major writers that aren't just good plays, but are great plays. We've had that before, but now it really feels like we're entering new territory."

The new territory Durnin talks about not only highlights the programme, but how PFT is funded, too. The publication two weeks ago of the Scottish Arts Council's Flexible Funding awards for 2009-11 appeared to withdraw support for Pitlochry. In concrete terms, this means the loss of £300,000 per year. Considering both the amount and quality of work produced by Pitlochry, this in itself is a relatively small sum when put next to bids from companies producing fewer productions. Even so, rather than gnash and wail at the SAC's decision as some companies with a zero next to their name did, PFT welcomed what appears to be a proactive shift in thinking, hopefully leading to a brand-new set of funding arrangements.

"We always felt that we came under Flexible Funding very much by default," says Durnin. "Part of the problem was that in our heart of hearts we knew we didn't fit into that arrangement. So in terms of it not being appropriate for PFT to be flexibly funded, we agree entirely with the SAC. What we and all our funders need to look at is what PFT brings to Scotland, and how it feeds into Scotland's artistic infrastructure. So there is a change in thinking going on, which makes for an ideal opportunity for a lot of our existing relationships to be re-thought. For once, Pitlochry is in the right place at the right time, and all that helps to develop the repertoire how we want it to develop."

Pitlochry Festival Theatre is in a unique position in that it earns roughly 75% of its own income (a cool £2.2m per annum) through its box office as well as its restaurant and other ancillary activities.

"We've always had one foot in the commercial world," Durnin says, "and we're fully aware that other companies can't rely on the sort of large income we can. So what may appear like disparities in funding actually puts us in an even more unique position. Even our repertoire system has very little to do with organisations in the UK. Having a resident company performing six plays is more in keeping with festivals in North America and theatre companies in eastern Europe than anything else."

This is all a far cry from the perceptions of PFT as being a purveyor of light and fluffy fare to bolster the tourist trade. Such presumptions may have been deserved a few years ago, though any lingering scepticism comes from its near autonomous existence beyond the radar of Scotland's central belt.

"It's a very curious place, Pitlochry," Durnin admits. "It takes two or three years to get your head round what makes it work, with the relationship with the town and the landscape. Then once you've worked it out, something clicks and it makes absolute sense. That's strangely to do with managing multiple shows at the same time. It's not just about producing a single piece of work, but a body of work."

Which is why Durnin has given his seasons a broadly themed umbrella title. This year, Country Matters sums up the plays as well as tipping a knowingly theatrical wink to their more metaphorically inclined readings. As he's long indicated, however, Durnin wants even more.

"Pitlochry's always been about six shows," he says. "We'd like to expand that to seven or eight. That way we can drop more niche work into the season, and which may only play for a couple of weeks before dropping out again. We can also start bringing things in late in the season, as late as September, with a view to how we can take them elsewhere. I'd like to look at more contemporary work from Canada, Scandinavia and anywhere else that has a geographic empathy with how Pitlochry sits in terms of the rest of Scotland."

"In 10 years," he says, "I see that bigger repertoire as being achievable. By then I'd also like there to be a second auditorium with a capacity of 200, with a smaller repertoire of six shows. I'd also like to branch out more into site-specific work, using found and green spaces, and expand our education and lifelong learning work. All this would be served by a much larger acting ensemble of 25 to 30. We'll also hopefully be connecting with other producers across the world in a very real way. It's up to us to spread the word about what's unique about us, and about how PFT is in the process of reinventing itself for the 21st century. We've rehearsed the arguments about that with ourselves for a very long time now. The first stages are in place. If we can make the rest happen, it will signal the biggest operational change in Pitlochry's history."