NICOLE KRAUSS was seven years old and staying with her parents at the brutalist monstrosity that is the Tel Aviv Hilton when something strange occurred at the hotel that still holds an eerie fascination for the much admired, bestselling American novelist.

It is not only because the 43-year-old’s life began there – she was conceived there though born in New York City and often returned on family holidays – “It is also the spine-tingling nature of something that once happened to me there, an experience that only increased my awareness of an opening, a small tear in the fabric of reality.

“It occurred in the hotel swimming pool,” she writes in her magnificent fourth novel, Forest Dark, a gorgeously written, effortlessly artful imitation of life, in which one of her two protagonists, a fortysomething writer called Nicole, who is struggling with her next novel, leaves her failing marriage, dour husband and two small sons behind at home in Brooklyn and heads for the same hotel — of which there are photographs in the novel.

Just as Krauss – who will be discussing her novel when she makes her debut at the Edinburgh International Book Festival on Sunday – did as a child, her fictional alter ego recalls diving into the pool for shimmering shekels, but with little success.

In the novel, a diamond and ruby earring is dredged up by Nicole’s brother. “It’s a situation I experienced – my father had planted the money but not the earring,” says Krauss. “But that’s not why I think it is interesting. What fascinates me is the way we’re expected to accept the laws of reality and the ways in which we agree to believe certain realities.”

Back home in New York, Krauss’s mother had the earring made into a pendant for her daughter. “I still have it. If I can find it, perhaps I’ll wear it when I come to Edinburgh,” says Krauss, speaking from her Park Slope home, a Brooklyn brownstone, where neighbours include the writers Siri Hustvedt and Paul Auster.

Krauss once shared the beautiful house with her husband, erstwhile wunderkind novelist, Jonathan Safran Foer, the father of her two small sons, Sasha, 11, and Cy, 8, but the famously “golden power couple” of American letters split up in 2014 in a blaze of publicity. (His latest novel, Here I Am, also features a failing marriage with two sons.)

Raised on Long Island, she is the daughter of an English-born mother and surgeon father, and had a comfortable childhood growing up in a home that was a Bauhaus masterpiece. She won a scholarship to Oxford University (she also has a degree from London’s Courtauld Institute) and her poetry and criticism was widely published before she wrote her first novel, Man Walks into a Room (2002). Alongside Safran Foer, she was included in the New Yorker’s list of “20 under 40.” Her third novel was Great House (2010), a finalist for the National Book Award and the Orange Prize.

“I have staked my life on the notion that literature affords us this absolutely unique opportunity to step directly into another’s inner life, to find out what it means to be another person," she says. “I think that teaches a kind of empathy. For me, certainly as a reader, that’s the value of great literature.”

Which perhaps goes some way to explaining why the story of the earring is drawn directly from Krauss’s life as is a scene in Forest Dark when Nicole is watching TV and thinks she sees herself in the audience – the novelist is playing with the idea of multiple possibilities existing simultaneously.

Philip Roth has described Forest Dark as “brilliant," adding that he is filled with admiration for Krauss’s achievement. Another astonishing achievement is the fact that she reportedly received for this book and her next – a collection of stories, provisionally called How to Be a Man – an advance of more than $4m (£3.1m), an unheard-of sum for a work of literary fiction.

One thing is certain, she has not played it safe: Forest Dark is a cerebral novel in which she takes breathtaking risks, questioning received ideas about faith and identity, featuring Freud and, most vividly, Franz Kafka. In Tel Aviv, Nicole is approached by an elderly literature professor who might also be a Mossad agent, and who tempts her with unpublished manuscripts by Kafka, who did not die in an Austrian sanatorium as believed, the professor claims, but instead faked his death to become a gardener in the Holy Land.

Forest Dark is set mainly in Israel. Her characters, Krauss says, are “awakened by the energy” of the land, where she has never lived but says she has always felt “so much of my true self is there.” She describes the Jewish state as a place of “soulfulness” and “meaning.”

In her novel, before we meet Nicole, we encounter a retired lawyer, Jules Epstein, who is overcome by the desire to give away his vast wealth following the deaths of his parents. He encounters a rabbi at a New York conference and sets off for the Tel Aviv Hilton in search of transformation. His story is told in the third-person, while that of Nicole is related in the first-person.

Why has she given her character her own name and profession, and many similar personal details, I ask Krauss, whom I have interviewed twice in the past. After all, she told me when we first met in Brooklyn (to talk about her second novel, the award-winning, international bestseller, The History of Love) that she was shy. “I really don’t want to write about characters who might sound like me, or look like me, and perhaps be mistaken for me. Imagining I am an old man, for instance, means I have no fear of exposure," she told me.

When I quote this back to her, she laughs and says: “I do like writing about the inner life of elderly Jewish men, such as Jules Epstein, or Leopold Gursky, say, in The History of Love. I feel great tenderness for them. But, with Forest Dark, it just felt authentic to call the character Nicole. It felt right; it felt natural. What is more unreal, what is more a creation than the self? We seem to want to know what is the truth about people and their lives.

“Fiction is always a reflection of the author’s perspective and memory and sense of the world, but I am certainly not writing autobiography. I am asking what happens when you break with the old and turn toward the unknown."

It has, though, she confesses, been a long journey to finding a strong female voice in her work. “Forest Dark is a book about the escape from one life into another life so perhaps that explains it since I have another life now."

It is, however, seven years since her last book. She says: “It took me three solid years to write this novel, although it was actually five years between books because I finished it last fall,” she explains. “Of course, life has intervened as it should. I write when a book starts to feel urgent. I always need a new problem, a question to present itself. I am not really a storyteller, but it's that moment when the grain gets underneath the skin and when I have enough to go on that I start a novel.

“I have no choice, of course, but to write when I can. I have kids but I also travel. I go back often to Israel. Yes, to the Tel Aviv Hilton. Like ‘Nicole’ I’m obsessed! I write while I travel, too. It would be really terrible for me to have to take time off from writing so I never stop. And I love dancing! Moving shakes up thought for me.”

She hopes Edinburgh will shake her up, too. “A book becomes real once it has readers so I can’t wait to see what will happen when Forest Dark goes out into the world.”

Forest Dark, by Nicole Krauss (Bloomsbury, £16.99). Nicole Krauss discusses Transformative Fiction at the Edinburgh International Book Festival, August 27.