Most legends are built or battled for; a rare few gestate. The last time Neutral Milk Hotel, of Athens, Georgia, played in London, it was to a crowd of barely 100 in 1998. They were promoting their now-seminal second album, In the Aeroplane Over the Sea, a fuzz-heavy, folk retelling, it's said, of the Anne Frank story. The record developed an avid following, and the project's horrified mainman Jeff Mangum – who wrote the album during bouts of night terrors and sung the songs to the ghost in his haunted wardrobe – disbanded the group that year, then slid into seclusion. Rumours buzzed about a paranoid breakdown. In his absence, the album became a cult phenomenon, inspiring Arcade Fire, Beirut and a generation of alt-folk clatter-mongers. When Mangum re-emerged for solo shows in 2010 he was greeted like an indie Salinger, and the reformed NMH have now sold out three Roundhouse gigs. It appears that Mangum has barricaded and nail-chewed his way into legend.

Emerging for a solo Two-Headed Boy in eye-shielding cap and unkempt beard, he certainly looks fresh from the wilderness. But as his rag-tag band of strangely bearded woodsmen and minstrel fops gather for The Fool, the free-for-all spirit of the Elephant 6 collective that NMH sprang from is instantly revived. Players drift from bowed banjo to accordion to flugelhorn to singing saw, weaving ramshackle folk-punk tapestries that threaten to unravel at any moment around Mangum's gorgeously unrefined vocals and dadaist nightmare imagery. Oh Comely savours its visceral, sticky close-ups on foetuses, ovaries and bodily fluids; Song Against Sex is an ecstatic carnival rampage full of burning men and elated suicides. Among Mangum's genius traits is his ability to wrench wild euphoria from despair, and it's sheer joy to hear bleak, tormented jigs like Holland, 1945, Naomi and Ghost in full fuzz-frenzied flow.

There are experimental drone rarities and maniacal bagpipe parade tunes here but not a note of new material – Mangum's talent is still essentially lost to us. But as the fan who dances himself to his knees in worship would attest, we're just thrilled to have him back from the brink.

• At Roundhouse, 23 May. Box office: 0844 482 8008. Then touring until 17 August.