On a dark, rain-lashed afternoon in the rolling South Downs, a 72-year-old woman is in a hotel lounge, pouring tea from a stout, silver pot. That's not unusual in Lewes, the county town of East Sussex, but this woman is a little different from the rest of the hotel's clientele. For starters, she is talking about a trip across America in 1959 with a man nearly twice her age. What's more, her saucy laughs are brightening the room's murkiest corners.

"After all, I was 24, which was very young to take a journey across America with a 44-year-old. Especially to go recording musicians in the mountains. One of them, the Virginia singer Texas Gladden, took me to one side and said, 'You ought to be careful with an older man.'" Shirley Collins' face lights up impishly. "I suppose she didn't know I was already sleeping with him!"

England's greatest folk singer is talking about Alan Lomax, the legendary field recordist whom she loved and worked with nearly 50 years ago. Lomax's contribution to music has been heralded for years, but Collins' own work has only recently been getting the recognition it deserves. In the last 18 months, she has been given an MBE for services to music and the Radio 2 Good Tradition award, the station's equivalent of a lifetime achievement Oscar. This month she curates a five-day festival at the Southbank called Folk Roots, New Routes, named after the pioneering jazz-folk fusion album she made with Davy Graham in 1964. It's about time a woman whose gorgeously austere style of singing shaped the understanding of English traditional music, and whose approach to it influenced a generation of folk artists, was honoured.

But given that Collins stopped performing altogether in 1978, why is her career having a renaissance now? Collins takes us back to 1993, and the publication of Alan Lomax's history of blues music, The Land Where the Blues Began, to explain.

Collins sighs at the memory. "Alan sent a copy to me with a fulsome dedication written inside it by hand, but in the book itself I was brushed aside. All it said was, 'Shirley Collins was along for the trip.' It made me hopping mad. I wasn't just 'along for the trip'. I was part of the recording process, I made notes, I drafted contracts, I was involved in every part."

So Collins did the only thing she could: she started writing her own version. Her memoir, America Over the Water, was published in 2004 and it finished with the words: "Shirley Collins was there for the trip? Well that's not how I saw it."

The book gives a good overview of Collins' extraordinary life. She was born in Hastings in 1935 to a milkman and a communist mother (they divorced after the war), and her childhood was "a happy one, strangely enough, full of the sound of folk songs played by my family". Still, Collins mother's politics were not hugely to Collins' taste. "My mother would take me to meetings to talk about dialectical materialism, and I'd be, 'Mum, I'm 14, can I go home? I want to talk about boys and music!'" She found both when she left home for London in 1954 to live "on beans in a bedsit", sing at folk clubs, and research English folk music at Cecil Sharp House.

That year she met Lomax at a party. He was already well known for making a BBC radio series about folk music, produced by the young David Attenborough. Knowing Lomax would be there, Collins scraped together pennies to buy enough cheap, navy needlecord to make a new outfit. She made quite an impression. "I fell in love," she writes in the book, "and he seemed to like me too, in spite of my skirt."

They broke up in 1958 when Lomax returned to America, but reunited when Collins crossed the Atlantic by ship to join him on his trip across Virginia, Kentucky, Alabama, Mississippi and Arkansas. They recorded performances at prisons, captured the extraordinary fiddle-playing of 91-year-old Sid Hemphill, and discovered the blues of Mississippi Fred McDowell. "I was so privileged, and I knew that at the time," says Collins. "But I feel even more privileged now."

But in the early 1960s, the pair broke up for good. Collins moved back to Britain to build her own singing career, and married her first husband, Austin John Marshall, much to Lomax's despair. She had two children, Polly and Bobby, and made a series of albums including The Sweet Primeroses, Love, Death and the Lady, and - with her sister Dolly - the innovative Anthems in Eden, a collection of songs about the first world war accompanied by viols, sackbuts and crumhorns. Around the same time, Collins divorced her first husband and married Fairport Convention's Ashley Hutchings, before they too divorced in the late 1970s.

Collins kept in touch sporadically with Lomax, but they only met once again, in Brighton in the early 90s. As ever, she says, there was great affection between them, but they argued about Collins' career. It was only after his death in 2002 that Collins properly forgave him.

The final straw was seeing him, debilitated by a brain haemorrhage and unable to speak, in the documentary film Lomax the Songhunter. "To see Alan at the end of that film, in the swimming pool ..." Collins' eyes glisten at the memory. "The light that came in his eyes really broke my heart. I thought, God, I can't end this on a sour note." In the absence of Lomax to speak to, she did the only thing she could: changed the last line of her book. The 2006 paperback edition now finishes with an Appalachian folk song that begins with the words: "But when you're on some distant shore/Think on your absent friend."

Since it was published, America Over the Water has taken on a life of its own. Collins turned it into a spoken word and song show with her friend and former partner Pip Barnes, which encouraged the Southbank Centre to make her a festival curator - even though, she says, they were loth for her to mention the word "folk" in its title. But surely given the recent folk revival, isn't the word rather fashionable? "English folk isn't. American, Irish and Scottish music is loved very naturally, but people assume English stuff is all about Arran sweaters." Collins laughs. "We couldn't afford Arran sweaters!" She is quietly pleased that her powers of persuasion won in the end.

But Collins will not be singing at the festival herself. "My voice went when my second husband left me in 1978," she says, solemnly. "I was heartbroken, but I should have been angry. If I'd been angry I would've been all right." After Hutchings left her, Collins suffered from dysphonia, a condition linked to psychological trauma that stops the voice working properly. Another influential folk singer, Linda Thompson, suffered the same condition after her divorce from Richard Thompson. Collins gave up singing completely, and turned her hand to normal jobs, including running a branch of Oxfam. She has recorded nothing since, because she is worried her voice isn't reliable enough to convey the folk songs properly.

This idea of the "folk voice" is very important to her. "It is everything. A folk voice should just be a conduit for the song. You want no sheen, just the song." Only by singing simply and directly, she says, can the working-class origins of folk music be preserved. This is partly why she disliked protest singers such as Joan Baez in the 1960s. "They forgot about those origins - and also they were so bloody wealthy."

Collins is much happier remembering how a musician she and Lomax recorded, a former penitentiary inmate called James Carter, got a cheque for $20,000 after the Coen Brothers put him on the soundtrack to O Brother, Where Art Thou?. She smiles. "That felt like justice."

Nevertheless, the revival of interest in folk music has produced mixed emotions in Collins. She is happy it is being passed down through the generations and she talks gushingly about modern musicians such as Will Oldham's brother, Ned, Alasdair Roberts and Lisa Knapp, all of whom are performing at her festival. But she is concerned that folk is taking a wrong turn, "with women especially. Many of them are almost turning themselves into pantomime acts. They're so self-aware, strutting around, turning it into theatre. What they should remember is that these songs are about people, not a person."

But she remains hugely touched by the patronage of younger musicians. She talks delightedly about the EP of her songs made by Colin Meloy of the Decemberists (see below), and bursts with pride when talking about Graham Coxon's performance of Just as the Tide Was Flowing at the Radio 2 folk awards. "Ah, Graham! For someone from his world to connect with my music and understand it so readily - his performance was the highlight of my life."

The current lauding of her feels surreal, she says. "It just tickles me pink, really. I mean, how did these people find out about me? I'm just a normal woman having a kitchen fitted, having her mobile run out of battery, pouring the tea." She laughs merrily. "But this music must be an antidote to modern life."

She remembers a quote from her late friend Bob Copper, the Brighton-based folk singer of the Copper Family, which sums up folk music's majesty. "He was describing this old singer called Enos White, how he stood there with his feet firmly planted in the ground, and how the song seemed to draw up from the very earth itself." Collins' eyes sparkle as the wind rattles the windows, and she puts her cup back down on its saucer. "At the end of the day, that's what it's all about. That's why people connect. It's all about being human."

The Decemberists' Colin Meloy on why Shirley Collins remains an inspiration

I sing Dance to Your Daddy to my son every night before bed. He lies on my chest, occasionally restlessly repositioning his head from my shoulder to the crook of my arm. I love the line "You shall have a fish and you shall have a fin/You shall have a herring when the boat comes in." I wonder if he understands it. It must strike him weird to be offered so much seafood. The song is like a time capsule. It transports me to a time where the promise of a "lobster boiled in a pan" was a very special treat - a sign of a father's unflappable devotion to his son in a time and place where fish, fins, herring and lobster were a real currency. I imagine it being sung by some fisherman, in his sea salt-crusted Wellingtons and Pendleton wool sweater, reeking of the fisheries, encumbered by the welterweight embrace of his adoring son.

I've heard a few versions of the song, but it's Shirley's that really captivates me. Considering that the titular command of the song is to dance, it's a surprisingly melancholy arrangement. It's only two chords - the major and its relative minor - and when the end of the lines resolve on that minor chord, there's something inexpressibly heartbreaking in it.

And it's the voice that sings it, too. I think to call Shirley's voice angelic is to do it a disservice. There's no denying the high, pure beauty of her voice, but there's too much earth, too much dirt in it to call it angelic. It's also a voice completely its own; there's no other voice to match it. The folk revival on both sides of the Atlantic produced a lot of imitations, but Shirley's voice is a touchstone.

I've gone to great lengths to amass a nearly-complete collection of Shirley's work and I'm constantly in awe of its diversity. She has been both an ardent traditionalist and a cutting-edge innovator in the realm of folk song arrangement, but it's always that voice that carries through.

· Shirley Collins' Folk Roots, New Routes season runs at the Southbank Centre from Tuesday until March 30. Colin Meloy Sings Live! is released on Rough Trade on April 7. More at shirleycollins.co.uk