At a secret location in the rolling pasture of west Devon lies a marshy patch of farmland protected by £35,000-worth of solar-powered electric fencing. This isn’t to keep people out but to restrain the tree-chomping, river-damming residents of these three hectares. Outside the fence is a typical small valley, with a trickle of a stream, willow thickets and pasture grazed by cattle. Inside the enclosure, the tiny stream has been blocked by 13 dams, creating pools and half-metre-wide canals. These have been built by Britain’s newest wild mammal, the beaver, which uses its waterways like we do – to transport goods. And as the beavers have coppiced trees, the willow thicket has been replaced with sunny glades of wild flowers – marsh thistles, watermint, meadowsweet – which dance with dragonflies and butterflies.

“The beavers have transformed this little trickle of a stream into a remarkable, primeval wetland,” says Mark Elliott, lead beaver project officer of Devon Wildlife Trust, which released two beavers here in 2011. “This is what the landscape would have looked like before we started farming, and it’s only six years old. That’s the amazing thing.”

The return of beavers to Britain half a millennium after we hunted them to extinction is both thrilling and controversial. The Eurasian beaver has been reintroduced into virtually every European country in recent decades, including densely populated nations such as the Netherlands, where conservationists laugh at Britain’s agonies over the animal. While Britain remains a member of the EU, it is obliged to reintroduce extinct species “where feasible”. In Scotland, the government last year declared the animal a native, protected species after an official trial and unofficial releases – the first ever formal reintroduction of a once-native British mammal. In England, several Bavarian beavers unofficially let loose on to the river Otter in east Devon are now part of an official trial licensed by Natural England, the government’s conservation watchdog. In 2020, the government will decide whether to allow them back for good.

In Europe, beavers have stimulated ecotourism, but they may also benefit human communities in other ways. Scientific studies show that their dams remove pollutants from water – they are particularly effective at filtering out harmful phosphates – and reduce floodwater peaks. Enthusiasts proclaim these large herbivores could become 21st-century water engineers, protecting towns from flooding. But some farmers hate beavers because their dams can also flood productive land. In one Scottish valley, where beaver numbers are estimated to have risen to several hundred, beavers have been shot before the formal legal protection is in place. Beavers can live in Britain but can the British live with beavers?

Facebook Twitter Pinterest Nice work, fellers: a beaver-toppled tree in west Devon. Photograph: Patrick Barkham/The Guardian

The experimental site in Devon is vivid proof of how beavers create a wildlife paradise, re-engineering small valleys with amphibian- and insect-friendly ponds. Exeter University scientists counted 10 clumps of frogspawn here in 2011; this year there are 681. There were eight species of water beetle in 2011; 26 in 2015. Herons, grass snakes, kingfishers, willow tits, rare barbastelle bats have all returned. In Scotland, ecologists recently found that beavers increased the number of plant species by nearly 50% because they create such a rich variety of habitats, from saturated meadows to sunny glades where moisture- and light-loving plants prosper.

But it’s the beavers’ water works that have really struck those studying the site in west Devon. Its small beaver ponds and soil saturated by damming hold nearly 1m litres of water. Scientific instruments measure water flows and quality above and below the site. The beaver dams improve water quality. (Phosphates and excessive fertilisers washed into waterways can create toxic algal blooms, which can be fatal for anything from fish to swimming dogs.) Exeter University researchers have collated data in a remarkable graph showing flood events. During heavy rain, the volume of water flow increases rapidly above the site, creating a dramatic spike in the graph. But when the floodwater is measured again below the site, there is a gentle curve. In other words, the beavers dramatically reduce the peak flow of floodwater on this stream.

The experimental site is on farmland owned by retired beef and sheep farmer John Morgan. He sees the beavers’ impact on flooding in the real world. Before the enclosure, country lanes below this land used to flood in heavy rain; since the beavers came in, the roads haven’t flooded. “It proves that [using beavers as a form of flood defence] works,” says Morgan. Should beavers be reintroduced? “I think it’s a good idea. They do a lot of work that these different water companies have to do. If a dam gets washed out, the beavers put it back overnight. They do a 12-hour shift every day of the year. They don’t take holidays.”

Over in east Devon, holidaymakers from China and New Zealand are among those coming to watch the 21 beavers on the river Otter. Summer evenings are the best time to see their kits and families gather on the bank after 6.30pm. I walk across fields over the broad valley with Elliott. “As you can see,” he observes drily, “It’s a decimated landscape. The beavers have annihilated everything and cut down the trees.”

The bucolic countryside looks unperturbed by beavers. When Natural England announced plans to remove this “non-native” animal, which was mysteriously found breeding on the river in 2013, locals objected and Devon Wildlife Trust offered to fund an official £500,000 trial. The trust has raised money via crowdfunding and selling novelty “beaver chips” – bits of wood gnawed by the beavers – but Elliott admits the charity is still “desperately in need” of funding. At least the beavers are thriving: from just one pair, there are now 21 individuals, with almost a dozen kits this summer. “Clearly, they are expanding to fill the available space, of which there is plenty,” says Elliott.

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On the banks of the Otter there are more storylines than a soap opera. A nosy dog recently got a nip from a beaver for straying too close to its lodge. The other night, a badger slipped from the riverbank into the water and was hustled out by a beaver. Locals named one adult Bob, but were surprised when it returned with a pink eartag. So it’s now Mrs Bob, its mate Mr Bob; their kits Miss Bob, Master Bob, Bobby Junior and Roberta.

“It’s the little ones that have really enthralled me,” says local Gaynor Cooper, who comes out most nights. “They are tranquil and seem very gentle.” These slow-moving herbivores don’t eat fish and are much more easily spotted than otters. Five minutes after the first picnic blanket is laid down, there’s a plop of flat tail against water and Mrs Bob glides upstream, with a cute black button nose and brown fur matching the muddy bank.

Facebook Twitter Pinterest An example of how beavers transform a woodland for the benefit of wildlife. Photograph: Patrick Barkham/The Guardian

I can’t find any dissenting voices on the riverbank “but beavers do create issues, there’s no two ways about it,” says Elliott. “They are not marauding across farms causing damage but they do engineer water and they could change the way we drain land.” His most crucial task is to work with local farmers. “Most have been brilliant. We’re not seeing any persecution [of beavers] on the river at all.”

In Scotland, farmers complain they have lost valuable farmland to flooding caused by beaver dams and have spent thousands clearing ditches blocked by the animals without recompense. They are negotiating with the Scottish government to cull if beavers threaten agricultural land.

Elliott says that, in Devon, “the farmers say to us: ‘We don’t mind the beaver, but if they return we need to be able to deal with problems quickly.’” This doesn’t necessarily mean killing them. In two instances so far on the Otter, dams have flooded small areas of grazing pasture. Under the trial’s terms, Devon Wildlife Trust pays to solve the problem at no expense to the farmer. In one case, it installed a “beaver deceiver”. This pipe goes through the dam, lowering the water level and stopping flooding. The pipe is concealed and covered with mesh, so busy beavers can’t block it. Important trees are protected with a sandy-textured anti-beaver paint – the animals hate chewing it. The trust hopes that such technologies will allow beavers back into human-dominated countryside, but also knows that farmers’ acceptance may depend upon government payments to reward them if agricultural land is given over to beaver-created flood defence.

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For centuries in Britain, we have sought to remove water from land to farm it, and channel rainwater out to sea as quickly as possible. We have built houses on so many floodplains downstream that we need to slow the flow, and hold more water on land upriver to stop towns flooding. Beavers installed in every headwater – at the top of small streams – look like ideal, cost-effective flood engineers, providing landowners are compensated. But, as Elliott explains, it isn’t so simple. Beavers are territorial and like deep water. Small streams require intensive beaver-labour to create dams and deep-enough water. Beavers won’t naturally inhabit these locations unless all the better territory downstream is occupied by other beavers.

“If you’re trying to protect people from flooding downstream, we’ve got to have this type of dam system in the headwaters. But if you put beavers in, all they will do is move downstream,” says Elliott. “You’ve either got to hold them there with fencing or have beavers back in the landscape, so all territories are occupied and they are forced back into these sub-optimal habitats, where they must manipulate the landscape.”

In Cornwall, holding beavers in a pen upstream is exactly what one local farmer has started doing this year, in a bold attempt to protect the village of Ladock from flooding. There’s a proposal for a similar scheme in the Forest of Dean, Gloucestershire. But fenced-in beavers won’t be affordable in the long term. Will the beaver be permitted back into the wider landscape? Elliott believes there are plenty of suitable rivers – from the Severn to the Thames – but fears that they could cause more problems than benefits for intensively farmed lowlands such as the East Anglian Fens or the Somerset Levels.

On the banks of the Otter, David White comes down most nights to photograph his new neighbours. “It’s a shame the government won’t put any money behind the beavers,” he says. “The beaver can majorly influence ecosystems but it is a big animal and it will need space. And I don’t know how good humans are at giving it space.”