When Bob Dylan calls, says T Bone Burnett in his amiable Texan drawl, the tendency is to listen.

When he calls inviting you to collaborate on a sheaf of his previously unrecorded lyrics, you listen very hard indeed. "Bob's publisher rang up and said they'd found a box of his lyrics from 1967, and would I be interested in doing something with them?" says Burnett, still faintly amazed by it all. "He'd forgotten all about them. The idea of working with a 26-year-old Bob Dylan with almost 50 years of hindsight was intriguing, and I think Bob was equally intrigued by what other people could do with these words now."

The result is Lost on the River: The New Basement Tapes, a fascinating album on which the likes of Elvis Costello and Marcus Mumford set Dylan's recently unearthed lines and lyrics to vibrant new music.

The choice of Burnett to oversee the project was an obvious one. His relationship with Dylan stretches back to the days of the Rolling Thunder Revue in the mid-seventies, when Burnett played guitar in his band. "He's a friend of mine who I love, and I understand him in ways that not many people do," says Burnett. "I feel Bob, if you know what I'm saying!"

Just as significant as the "feel" are Burnett's credentials as unofficial curator-in-chief of American roots music. Describing his work as "preservation and conservation," he sounds more like some gnarly backwoodsman than a celebrated musician and producer. Burnett has released more than ten solo albums but insists "my goal was never to be a rock and roll star. I was never comfortable on stage or in front of the camera. I like being in the shadows, keeping some smoke between me and the rest of the world."

Behind that smokescreen Burnett has become one of American music's great facilitators, so much so that his quest for anonymity has proved singularly doomed. He won multiple Grammies for his work as executive music producer on the Coen Brothers' bluegrass Odyssey O Brother, Where Art Thou? and an Academy Award for the Jeff Bridges cowboy country vehicle Crazy Heart.

Now he has added a fresh twist to these Basement Tapes, a vast, untamed vault of sombre originals, skew-whiff standards, drunken nonsense songs and country, blues and folk excavations recorded in 1967 by Dylan and The Band in the basement of a rented house in upstate New York. Because the box of newly recovered Dylan lyrics dates from the same year, Burnett used the original Basement Tapes sessions as a map for Lost on the River. He even assembled his idea of a modern-day version of The Band in the form of Costello, Mumford, My Morning Jacket's Jim James, Taylor Goldsmith from Californian folk-rockers Dawes and Rhiannon Giddens from old time revivalists Carolina Chocolate Drops.

"I was looking for people, like The Band, who could all sing and play multiple instruments in their own right as well as being band leaders. People who I knew to be collaborative, too, because the idea was to let it find its own course."

He gave the ensemble 24 previously unseen Dylan lyrics - typed and handwritten, ranging from multiple complete verses to doodled fragments - for which they wrote music. Occasionally, they added a line or two of their own, or turned two songs into one. The approach was not overly reverential. The idea, says Burnett, was not to replicate the original Basement Tapes but to honour its freewheeling spirit.

He says: "The arrangements were done on the fly, with a lot of courage and generosity. I think the fact that Bob was so generous with his lyrics encouraged everyone else. Mostly it was one or two takes, live in the studio. Everybody played on each other's songs, sometimes on their second or third instrument, to try to keep that devil-may-care attitude alive."

Two of Costello's three contributions -Married to my Hack and Six Months in Kansas City - are among the album's loosest tracks. Costello and Burnett are old friends. Burnett produced Costello's classic 1986 album King of America - "It was a precursor to a lot of Americana music, and looked ahead to what I've gone on to do" - as well as his most recent solo record, National Ransom. In the mid-80s the pair toured and recorded as The Coward Brothers, a dysfunctional spoof sibling duo in the mould of the Everly Brothers. As 'Henry' (Burnett) and 'Howard' (Costello), they once conducted an entire interview in character. "We're going to get back into the Coward Brothers," says Burnett. "Actually, we're already sort of back into it, working with a brilliant animator. But that's a tale for another day..."

While work on Lost on the River was continuing at Capitol Studios in Los Angeles, Dylan was in the adjoining studio, beavering away on a new album of standards which Burnett describes as sounding "like Debussy or something."

Rather than interfering, the great singer-songwriter "just left us to it. He was mixing his record in the next room, so he was there as a presence for us, but he didn't intrude. He was happy to let us have our way with this stuff.

"As he famously once said, 'Don't look back.' He knows that I've done lots of period films and that I understand different eras of music, and my guess is he was interested in what our team might cook up. I've had feedback since, and it's been positive."

Lost on the River fits the wider narrative of Burnett's career, during which he has consistently championed the range and richness of US roots music. "There's a great treasury of American music, and I've been spending a lot of time adding to that, hopefully, and preserving and conserving it," he says.

"Music is to the United States as wine is to France. It's our greatest power, the way we spread our culture all over the world, but technology has taken us way backwards. Our culture is deeply important and needs to be cared for with great respect and intention."

As far as Lost on the River goes, there may be more treasure to come.

"Hopefully there will be a second volume, because 40-odd songs were recorded, with multiple versions of some sets of lyrics," he says.

"There's another album right behind this one that could be finished quickly, and it's equally as good."

He's pleased to see that the songs have already got a life beyond the album. Costello played a couple on his recent European dates.

If Dylan himself adds one or two to his Never Ending Tour set list the circle will be satisfyingly complete. Burnett is tickled by the idea.

"You know, I bet he will, that sounds about right!" he chuckles, imagining how it might sound. "Wouldn't that be great?"

Lost on the River: The New Basement Tapes is released on Monday