'They ask me where hip-hop is goin', it's Chica-goan," said Common on a 2005 track, "Chi City", dedicated to his home town. Three years later and one has the feeling that the rapper's prognosis was correct.

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Last month, amid the opulence of London's Somerset House, fellow Chicagoan Lupe Fiasco told his audience that "I'm from a city in the Midwest, best city in the whole, wide, wide world".

The previous day, Common had been in London, promoting his album Invincible Summer. Meanwhile, on an airfield outside Stratford-upon-Avon, preparations were being made for the headline performance of Kanye West at Britain's premier dance-music festival, Global Gathering.

Fiasco, clad in neck-tie and waistcoat, revealed he had been named by Esquire as one of the 10 best-dressed men in the world. West, the son of an English professor, is a masterful rap producer who dresses preppily. And Common, though still able to reach out to the streets, now provides the subtle backing to many a middle-class dinner party.

Back in the Windy City, The Cool Kids, a duo comprising of Antoine "Mikey Rocks" Reed and Evan "Chuck Inglish" Ingersoll, are tipped by Rolling Stone as one of the 10 artists to watch, following the release of their album When Fish Ride Bicycles. Inspired by old skool rap legends Eric B & Rakim but also taking in styles from the West Coast and the Southern states, The Cool Kids are at the forefront of a new wave of Chicago rap artists that also includes Kid Sista, Flosstradamus and Kidz in the Hall. Together, they are straddling genres and introducing new audiences to hip-hop.

This is something different from the harder, angrier sound of so much other rap music. Though these Chicagoans are all lyricists capable of giving the listener a sharp reality check, they are just as likely to bring a smile to your face. And though it is not a movement as such, these artists collaborate in their work – with West as the hub, guesting on the tracks of Common, Lupe Fiasco and Kid Sista alike. As a result, Chicago is now a hip-hop hot spot.

It has been a long process, this creation of a bastion of rap in a city long regarded by the hip-hop establishment as flyover space in a game fought out between the East and West coasts. Born in the South Bronx, galvanised by Compton, hip-hop has historically been associated with New York and Los Angeles.

That's not to say that Chicago doesn't have a fine musical tradition. This is the city, after all, of Curtis Mayfield and The Impressions. During the Sixties and Seventies, the city had its own distinctive Chicago Soul sound, shaped by record labels such as Vee-Jay, Chess Records and OKeh. Gospel-influenced singers such as Mayfield and Jerry Butler gave a foretaste of the classy tone of recent Chicago rap.

Yet when the Eighties arrived and disco faded away, New York block parties gave birth to hip-hop, while Chicago headed off in an altogether different direction. At a club called The Warehouse, DJ Frankie Knuckles began fusing disco beats with European electronica and the club gave its name to another genre, house music. During the next decade, the city's identity would be defined by house artists such as Steve "Silk" Hurley and Ten City.

None of this was particularly helpful to Chi-town's fledgling rap community. Ironically, it was a track that brilliantly analysed the history of hip-hop itself that enabled Common (then Common Sense) to break through and put down a corner stone for the future of Chicago rap.

"She was old school when I was just a shorty, never knew throughout my life she would be there for me," Common rhymed on 1994's "I Used to Love H.E.R.", using an extended metaphor that compared rap to a girl that he had fallen for when he was 10 years old. The track, since referred to by hip-hop pioneer Kool Mo Dee as "one of the most conceptual records ever", charted how the object of his affections moved from East Coast to West Coast, and became increasingly aggressive in attitude and vocabulary. "Talkin' about poppin' glocks, servin' rocks and hittin' switches, now she's a gangster rollin' with gangsta bitches." Chicago rap was on the map.

Born Lonnie Rashied Lynn, Common, 36, has become a celebrity in America, appearing in several films, including last year's American Gangster, and Wanted, starring James McAvoy and Angelina Jolie.

The rapper emerged from the underground with his 2000 album Like Water for Chocolate. The stand out track was "6th Sense", which echoed the battle-cry of (Chicago-born, New York-raised) poet and musician Gil Scott-Heron, with its opening line: "The revolution will not be televised, the revolution is here."

Kool Mo Dee, writing in 2003, said Common was "absolutely the most poetic emcee in the game today". That does not mean he has no edge. Last year's Finding Forever, his Grammy-winning seventh album, includes "Southside" and "Start the Show" (both with West as producer and guest rapper), tracks in which Common pays tribute to his Chicago neighbourhood, name-checking the city's notorious street gangs, such as the Black Disciples/Folks and the Blackstones, as well as James Baldwin. A more sophisticated gangsta rap, you could say.

West's roots are a long way from the gangs. His father was a former Black Panther but Kanye, 31, was raised by his mother Donda, an English professor at Chicago State University, in the affluent south-west Chicago suburb of Oak Lawn.

Yet he could reasonably claim to be the most influential figure in rap today. An early disciple of Jay-Z, West's extraordinary production skills were prominent on the Brooklyn rapper's classic Blueprint album. When West was nearly killed in a road accident, he used the incident to give himself some danger, making his breakthrough solo record "Through the Wire" with his jaw still grilled in place after surgery.

The track was one of a string of hits from West's debut album The College Dropout, which reached No 2 on the Billboard top 200. Not only did the album's use of West's teddy-bear cartoon alter ego show his aptitude for marketing and willingness to challenge rap's macho conventions, he also showed he could rhyme as well as produce.

The second single, "All Falls Down", featuring Syleena Johnson, contained an inspired attack on the materialism so prevalent in hip-hop, and in society generally: "It seems we living the American dream, but the people highest up got the lowest self-esteem, the prettiest people do the ugliest things, for the road to riches and diamond rings."

The album also featured an extended mix of "Slow Jamz", a US No 1 single on which West guested (alongside the actor Jamie Foxx) for the Chicago rapper Twista, who in 1992 earned a Guinness World Record for having uttered 597 syllables in 55.12 seconds.

As his career has progressed, West has incorporated a broader fan base. His second album, Late Registration, went to No 1 in the Billboard chart. The huge crossover hit "Diamonds from Sierra Leone" sampled Shirley Bassey and featured his mentor, Jay-Z. A later single, "Touch the Sky", embraced Chicago old and new by sampling Mayfield's epic "Move On Up" and giving a platform to upcoming rapper Fiasco. The live show in support of the album included a 17-piece all-female string orchestra and a spectacular video backdrop that starred, among others, Pamela Anderson.

West is no ordinary rap star and, despite his earlier criticism of high living, has frequently drawn criticism for his considerable ego. Who better to be a figurehead for the Windy City, a term derived from the supposed braggadocio of its residents as well as its climate? Except that West, according to the lyrics of "Everything I Am", where he notes that "I played a big role in Chicago like Queen Latifah" (a reference to her the New Jersey rapper's Oscar-nominated appearance in the film musical), complains he is not always loved on his hometown's toughest streets.

"People talk so much shit about me at barber shops, they forget to get their haircut. OK, fair enough, the streets is flarin' up, 'cause they want gun talk, or I don't wear enough baggy clothes," he says, before observing that "just last year Chicago had over 600 caskets. Man, killing's some whack shit."

West's appearance at Global Gathering, alongside international house DJ stars such as Roger Sanchez and Erick Morillo, perhaps shows that Chicago rap and the Chicago house heritage, a musical genre uplifting and positive in feel, are not mutually exclusive.

And now the third prong of this Chicago trident, Fiasco, 26, is coming through. One of nine children, his real name is Wasalu Muhammad Jaco and, in contrast to the stereotype of a rapper puffing on a fat blunt and swigging from a 40-ounce beer bottle, he is a Muslim who doesn't smoke or drink.

He burst onto the scene with "Kick, Push", a skateboarding anthem from 2006's Lupe Fiasco's Food & Liquor, which grouped him with skater icon Pharrell Williams, who contributed to the album. Elements of Fiasco's rapping style, laidback but sometimes speeded up, have been compared to Twista, and both are from the Westside of Chicago, home to many of the city's migrants from the sleepier Southern states.

His second release, Lupe Fiasco's The Cool, helped him get a slot this summer at Glastonbury's Jazz World stage, where he responded to criticisms of Jay-Z's star billing by telling the crowd: "I want to prove all the critics wrong, I want them to see that hip-hop definitely has a place in this world", before giving a triumphant performance.

Chicago is breathing life into hip-hop. And now Barack Obama, who was a community worker for the Southside of Chicago, as well as a parishioner of the Trinity United Church of Christ, which Common attended, has the Democratic presidential nomination.

Last month, as he stood on a patch of dance floor in Bureau, a members-only Soho bar, Common ran through the tracks on his new album and explained how Obama had influenced him. He said the track "Changes" had been inspired by "Hey Young World", a 1989 song by London-born rapper Slick Rick that acknowledged some of the bad stuff in life but told listeners to party and advised them, optimistically, that "the world is yours". The production for "Changes" was similarly upbeat and hopeful. "If Obama gets elected," said Common, "then this could be his inauguration song."