In 2006, Edinburgh-based painter David Martin was the recipient of the £10,000 Alastair Salvesen Travel Scholarship, an annual award which allows young artists to undertake a six-month working tour of whichever countries or regions interest them.

Martin journeyed across the Middle East, then through the Balkans to Eastern Europe.

But as he settled down to work in places like Sarajevo and Budapest, where he spent a month, he found his creative imagination firing in ways he hadn't expected. Particularly inspiring was the thriving underground arts scenes he found in those cities: pop-up galleries and makeshift theatres which brought a disruptive punk ethic to the sometimes staid business of exhibition and performance.

More than that, he found young, go-getting artists and musicians colonising unused, unloved or simply overlooked urban spaces to great effect. "There was a much more creative sense of what could be a venue," says the 39-year-old. "It didn't have to be posh or high-specification. It could be a ruin. These cities are in a real state of flux and people are improvising all the time. I liked that a lot."

When he returned home to Scotland, an idea formed. The result was Hidden Door, a not-for-profit mini-festival of art, music, theatre and film, held last year in disused vaults behind Waverley Station. It begins its second incarnation on Friday in a dilapidated 40-room complex in the shadow of Edinburgh Castle - or, more prosaically, in a former street lighting and cleansing depot which covers 1.2 hectares of prime Edinburgh real estate on King's Stables Road and consists of a range of buildings from the 18th, 19th and 20th centuries crowded round a cobbled courtyard.

There's still a week or so to go when I visit, but the signs of activity are everywhere. Near the courtyard entrance, Edinburgh-based Russian artist Yulia Kovanova of the Darkland Collective has a question for Martin concerning her installation/performance piece The End And The Beginning. Meanwhile in a vaulted room nearby, artist Sax Shaw is struggling with his installation, a half-tonne glass and steel monster which will be suspended from the ceiling. On a far wall in the same room, a technician is preparing to install a piece by prize-winning Glasgow artist Toby Paterson, and next door I find sculptress Jill Martin Boualaxai, resplendent in an orange boiler suit. Her site-specific work The Space Inbetween uses found objects, some of them old architects' drawings uncovered in last year's Hidden Door venue.

Later, Martin walks me through larger rooms in which technicians are putting up lights and building stages before we climb darkened stairs into what's known as the Cage Room. "We've no idea what these were for," he says as we walk through two large "cells" built of wood and what looks like rusted chicken wire. This is where Kovanova is to perform, with the audience in one cage and her in another.

The council didn't even have a plan of the site when Martin was finally given the green light to stage this year's Hidden Door event here so the first thing he and his team of volunteers had to do was map the place. They found 40 or so rooms which have been turned into a music venue, a theatre, a bar and scores of smaller spaces which are being handed over to artists. They will either exhibit work or create something in situ. At the bottom end of the courtyard is a painted, customised caravan whose sides swing open to create a small stage. A rolling programme of live events has been curated for it by Celie Byrne, daughter of artist John Byrne.

As well as the permanent art installations, the nine-day festival features a series of film screenings, staged performances such as Macbeth In Silence by the Ludens Ensemble (a choreographic re-telling of Shakespeare's play) and dance pieces like Julie James-Griffiths's Our Invisible Stopwatch.

A varied music line-up brings a showcase by Song, By Toad (the only music label to feature a comma in its name) and gigs by acts spanning every genre from glitchy electronica to post-punk. Less esoteric, perhaps, is a solid programme of headline acts which includes Scottish indie favourites Errors and Admiral Fallow, alongside hotly tipped LoneLady, who channels the spirit and scratchy punk-funk of A Certain Ratio through the body of young Mancunian singer-songwriter Julie Campbell.

One of the central planks of Martin's ethos is to let the venue dictate the content. This year, then, it is large and sprawling. Another core belief is that the unusual environment allows audiences to experience what they're seeing differently. This was very notable at last year's event which took place in 24 bare brick vaults of various sizes in East Market Street. "It was a very raw part of the city," says Martin. "You were very conscious that it was part of Edinburgh's fabric that you were entering into. It was rough, and people really liked that."

But perhaps most important, Hidden Door is a vibrant and vivid demonstration of what can be achieved even in the total absence of public funding. Browse the Hidden Door programme and you won't see the Creative Scotland logo anywhere. Martin doesn't have an office, he doesn't take any form of salary - his day job is as a teacher at Leith School of Art - and Hidden Door is run and organised entirely by volunteers. The five-figure sum he needs to run the event comes from ticket sales (events are free until 6pm, then priced accordingly) and from beer sales.

"My philosophy has always been that the arts need to learn how to fund themselves," he says. "I don't think they should be relying on handouts because I think they're going to dry up. I think we artists need to find ways to fund what we want to do."

For the arts to flourish and grow from the bottom up requires resourcefulness, he thinks. "And we need to make use of things nobody else is making use of. I think that's at the centre of the ethos of Hidden Door. It's about trying to be a much more enterprising way of enabling the arts to happen. And as we've done that we've found that one of the greatest resources we have is the urban environment."

So what next for Hidden Door? Or, more precisely, where next? Martin already has a venue in mind but clearly isn't going to reveal it before the 2015 event has even started.

"The answer is to keep moving, keep being fluid," is all he will tell me. "As the city changes, we change... We're only doing it on this scale because the venue's really big, but we could do Hidden Door next year and make it a small thing in a much smaller space."

Nor does he worry that wherever he sets down, the builders of boutique hotels and student flats will soon follow, to the point where there are no more Cage Rooms to be had.

"There are still quite a lot of spaces," he says confidently. "Edinburgh's an amazing city in terms of what's been built here, what's been built over, what's been tunnelled into. The Royal Mile itself is very porous. It's full of chambers and vaults."

For art's sake, let's hope so.

Hidden Door opens at the Old Street Lighting Depot, King's Stables Road, Edinburgh on Friday and runs until May 30. For daily programme details, see