Damaged, disturbed and prone to appalling violence, they are often demonised as 'feral'. Amelia Hill visits Mulberry Bush school in Oxfordshire where 40 youngsters are helped to come to terms with their nightmare pasts

When Lucy plays with her dolls, there are no happy endings. Instead, the nine-year-old tortures her toys, inventing plot lines focusing on violence, murder and bloodbaths.

Lucy doesn't have an overactive imagination. Far from it. Her games are based on cold, hard facts. They are an accurate reflection of the only home life she has ever known: abused both physically and sexually, and severely neglected from birth, Lucy also saw her mother beating her older sister to death.

It took five years for social services to remove Lucy from her mother and place her in care, by which point she was profoundly traumatised, a state revealed most obviously through her compulsive need to repeatedly act out her early experiences in behaviour so disturbed and disturbing that she was rejected by 27 foster families, as well as numerous mainstream and special schools.

But Lucy has been lucky in one respect: she is being treated at one of the few establishments in the country providing residential, therapeutic care and education for severely emotionally troubled and traumatised children aged from five to twelve years of age.

Based in the Oxfordshire countryside, Mulberry Bush school was set up in 1948 by Barbara Dockar-Drysdale, one of the world's pioneers in children's residential therapy. Inspired by the work of Donald Winnicott, the paediatric psychiatrist and psychoanalyst, Dockar-Drysdale took in evacuee children during the second world war and went on to study emotional deprivation and trauma in early years.

Bright, airy and compact, the school is home to 40 profoundly traumatised children who have such extreme and destructive patterns of behaviour that three members of staff need to be on hand to contain their violence: a level of care that costs £138,000 per child for a year – considerably more than any public school. Eton, for example, charges around £28,000.

The necessity for this 3:1 ratio of care became clear within hours of the Observer's week-long visit to Mulberry, an unprecedented level of access to the school. On our first day, we met seven-year-old Stan. Four years ago he was rescued from a paedophile ring in which he saw other children murdered by members of his own family. By the time he arrived at the Mulberry Bush, Stan had been through 73 foster placements and was widely considered to be beyond rehabilitation.

Our first sight of Stan was during one of the many white-hot rages that punctuate his days, often erupting without any discernible trigger. For his own safety, and the safety of those around him, the small, wiry child has to be pinned down in a full body restraint by three adults until the fury has passed.

As Stan thrashed, spat and tried to bite the adults restraining him, he betrayed the horrific experiences of his early years by screaming out shockingly explicit and unchildlike obscenities. Kneeling beside him and pinning his arms, legs and skinny body to the floor, the members of staff took it in turns to speak to him in slow, calm and low-pitched monotones, explaining why he was being restrained, exploring what he might be feeling and suggesting techniques he could use to calm himself down. As exhaustion overtook him, Stan's passionate, flailing fury gave way to twitching anger beneath the adults who continued, as gently as possible, to hold him down.

Eventually, with his frenzy abated, he lay, spent and silent, listening passively to the single member of staff who remained holding him in a less restrictive, but still close, restraint, continuously talking him through what had just happened.

Foster or adoptive families find it impossible to deal with children such as Stan. When local authorities try to place these children in families – sometimes without telling the new foster parents what the child has gone through or is capable of – the consequences are appalling. They include the recent case of the family who sued their local authority after the 10-year-old boy they adopted in Co Durham stabbed his adoptive father with a kitchen knife and attempted to sexually assault his half-sister. Or the couple who took Essex county council's adoption agency to court and won substantial damages after their adoptive son, who was five at the time of his placement, threatened to kill his pregnant, adoptive mother, putting her in hospital for several days.

One can only guess at a level of terror and brutality experienced by these small children that causes them to behave in such horrifying ways. Local authorities are not obliged to keep data on adoption breakdowns, so there are no government statistics indicating whether there has been an increase as a result of children's disruptive behaviour. However, a survey in June of the 92 (out of 450) local authorities in England, Scotland and Wales that do keep figures found a doubling in the past five years in the number of adoptive children returned to care because their new parents could not cope. The increase is insidious – in the past year alone, the number of children returned to care by foster families unable to cope with their traumatised and uncontrollable behaviour increased by a third. This increase comes despite a fall in the number of children being adopted overall: 4,637 children in 2007, the lowest number since 1999.

They might be the only people able to take on youngsters this damaged but there are no miracles at the Mulberry Bush. The school can't take away what has happened to children like Stan. Nevertheless, 45 minutes after we saw Stan carried from the classroom, kicking and screaming, he was back, calmly filling in a worksheet. Shortly afterwards, when the girl sitting next to him exploded in a similar rage, throwing chairs and screeching like an animal in pain, Stan, who would usually have joined in, ignored her. A few minutes after the second child had been carried from the room, with her arms wrapped tightly around her body to prevent her clawing the eyes of her care worker, Stan quietly walked over to his teacher. He had finished his worksheet and wanted a gold star.

"The sight of three adults holding a primary-school age child in a full body restraint does look deeply shocking, and we would like to find a way to ensure the safety of these children, and those around them, without having to resort to physical intervention," said Dave Roberts, who trains Mulberry Bush teachers in techniques approved by the British Institute of Learning Difficulties, which operates the only nationally accredited scheme for techniques of physical intervention suitable for children.

Roberts acknowledged that it was hard for the children to be held in this way, especially those who had been subjected to physical abuse. "We try to minimise the stress by constantly feeding back to the children during the restraints what we are doing and why," he said. "But I think most of the children here need restraints to feel contained and safe when their fear, panic and anger begins to overwhelm them. If we didn't restrain, their raw emotions would spill out and the school would implode in a ball of chaos."

Chaotic, impulsive and unpredictable, these are the children often condemned by the press and public as "feral". Even the school's own staff admit the children are often unlovable.

"Some of our pupils are the most abused, distrustful, cold and hardened of children," said John Diamond, chief executive of the Mulberry Bush. "They are so traumatised and confused that their behaviour can oscillate between being cut off and withdrawn, to aggressive attacks and outbursts of outrageous violence with no apparent trigger or motive."

Everyone involved in Lucy's care admits that this is her last chance to have anything like a normal life. Like the other children at the school, her experiences have caused her to adopt behaviours so dangerous she is already well on her way to a life revolving around reform school, detention centres, lock-down units, prison and, in all likelihood, an early death.

John Turberville, the director of the school, said: "If these children are ever going to be able to have any sort of normal future – and if society is going to be prevented from suffering the fallout from their behaviours – it is desperately important that they develop some sort of understanding about their traumatic start to life."

Bright, airy and compact, the Mulberry Bush is built on a radial model, with a central school surrounded by four smaller buildings in which the children are divided into small groups, to live in as close to a home environment as possible.

In these residential settings, the children learn what it means to co-operate, live with and relate to other children and adults in a normal, healthy way. The children's interactions are observed and closely managed by the "mother" or "father" of each house, then discussed in detail with the youngsters involved. The hope is that, over time, the children will realise they are no longer alone and marginalised in a hostile world. Eventually, the aim is to help them come to a degree of understanding about their early experiences and adopt new behaviours that could see them integrated, instead of ostracised, from wider society for the first time in their lives.

Such battles, however, are not easily won. "Love is not enough for these children," said Diamond. "A well-intentioned but sentimental view of providing a bit of 'tender loving care' will not work. We practise 'stern love', which is all about using one's determined personal authority to manage children in a robust and unambiguous way. These children's only hope of recovery requires great commitment and thoughtful relationship-building in a specialist holding environment, such as ours."

Diamond is deeply concerned, though, about what he sees as the increasing social exclusion and outlawing of those children and young people most in need of loving care and attention. "The so-called 'moral panics' and social anxiety around these children invite us not to think but instead to rush into simplistic and concrete solutions which can demonise children and deepen mistrust and anxiety," he said. "There is very little public sympathy for profoundly disturbed children, even when they are as young as ours. They're not seen as victims. People are incredibly sympathetic when cases like Baby P hit the headlines but when a child is excluded from three primary schools for stabbing teachers and causing general chaos, people often don't look beyond that shocking and intimidating behaviour in their rush to condemn and demonise."

The Mulberry Bush can offer sanctuary to a maximum of 40 children, referred by local authorities across the country as day or residential pupils. During an average stay of three years, the independent, non-maintained residential special school strives to teach the most basic tenets of socially acceptable behaviour to children for whom family, friends, society and school are alien and frightening concepts.

But this is a great deal to expect from children so disturbed that they have commonly experienced between 25 and 30 failed fostering relationships before they arrive. Diamond said the only thing the school could guarantee pupils was sanctuary. For many children, simply staying at the school for three years is a massive breakthrough.

"We attempt to transform hate into love but the prognosis can often seem full of despair and hopelessness," said Turberville. "We have to keep alive the possibility of a hopeful outcome. Our work is about embracing tiny possibilities of emotional growth towards the child becoming lovable."

The uncomfortable truth is that it is impossible to gauge the success of the school's ceaseless work and dedicated effort. Incidents of aggression and antisocial behaviour drop by an average of 95% per pupil. But once the children return to a home environment, on the verge of adolescence, there is no guarantee this will be sustained.

"Over their time here, we hope to have done enough work with the child to enable them to be in a classroom, and to be less harmful and suicidal as adolescents," said Caryn Onions, head of psychotherapy at the school. "But we have to be realistic. We will not have healed them. Instead, the most we can hope is that we have helped them be more integrated into mainstream society."

The near-impossibility of measuring success is a problem for the management team. During the Observer's visit, a letter arrived from a man in his late 50s. Now living in America with a family of his own and working for Microsoft, the former pupil admitted that the decades after leaving the Mulberry Bush had been "horrendous". But, he added, in the last 10 years, he had become stable and happy. His years at the school were his only positive experience while growing up, he said.

"So how should we judge success?" remarks Diamond. "A few years ago, this man would have been considered a failure. Now he's a success. We also have to remember that some children want to forget they were ever so out of control that they had to come here. I'm not sure how helpful it would be for them to be contacted every year for a follow-up assessment."

But although the outcomes are nebulous, the risk to the children – and to society – of doing less is too great to contemplate. These children are often not only the victims of Baby P-like failures on the part of local councils but might well end up as perpetrators of similar tragedies, like the two brothers aged 10 and 11 who last September pleaded guilty to the grievous bodily harm of two younger children by subjecting them to planned torture, sexual humiliation and prolonged, sadistic violence in the South Yorkshire town of Edlington.

There was one simple way of ensuring children got more help, said Onions: earlier referrals from social services and local education authorities.

"There's too much emphasis on keeping children in their abusive and neglectful families," said Diamond. "The reasons are multiple. There are the financial causes: local authorities simply can't afford to give residential care to all children who need it.

"But there is also systemic failure, long before children get here," he said. "It's not unusual for children to have six social workers in a single year, each of whom is overwhelmed by cases."

But, said Turberville, the responsibility for these children cannot simply be laid at the door of social services. "How many of us can honestly say we keep an eye on the safety of children in our community – or even know who they are?" he asked. "I'm not saying that other countries do better but that's no excuse for this mass collective shirking of responsibility towards our children. At the Mulberry Bush, we see the terrible results of that failure every single day."