Chris Chalkley has a vision. The former chinaware wholesaler, who settled in Bristol's Stokes Croft after the collapse of his business four years ago, wants to turn the area into one huge outdoor gallery. It has long been known for its graffiti (Banksy's famous work The Mild Mild West being the most prominent) but Chalkley talks about creating a Stokes Croftian artistic tradition – a Bristolian St Ives, if you like. He envisages local graffiti writers painting beautiful murals on every conceivable public surface.

Already, a walk through Stokes Croft feels like reading a giant, surreal graphic novel drawn jointly by Terry Gilliam, Hokusai and Edward Gorey. There are eccentric portraits on one wall, sci-fi monsters on another. On the side of a squat, huge dentures nestle next to bug-eyed ghouls and ornate calligraphy.

But this is not Stokes Croft as most of the country knows it. After 160 riot police raided a squat opposite Tesco one evening in late April, hundreds of locals spilled out on to the street to see what was going on. What began as a tense standoff soon turned into a street battle, which some claim was provoked by a combination of heavy-handed police tactics, and outsiders looking for a fight. But if the riot's origin is unclear, its outcome was not: by 5am the Tesco was ransacked, and a police jeep left in tatters. Another similar incident followed a week later, forcing the shop's temporary closure. Fifty-two people were arrested in all.

These events meant that few places can have entered the public consciousness with as tarnished a reputation as Stokes Croft did. Locals were introduced to a national audience as "layabouts", according to one broadsheet, and "elitist, stuck-up scum", according to another. "They try to portray themselves as peaceful activists, representing a counter-culture of creativity," sneered a Bristol daily at the time. "But yesterday the self-appointed champions of Stokes Croft turned on the area's decent, law-abiding majority of residents and showed themselves as nothing more than mindless thugs, intent on destroying property and inflicting serious injury."

Those who live in Stokes Croft were shocked by this portrayal. Thousands had campaigned for more than a year against the Tesco opening, but it was a good-natured protest, the antithesis of the melee that erupted in April. "Our campaign has been so peaceful and so positive," Claire Milne, one of the most active protesters, says. "It's devastating that this has made it look like those opposed to Tesco are all thugs."

There were violent clashes between police and demonstrators in April when Tesco tried to open a store in Stokes Croft, Bristol. As it finally opens its doors to customers, campaigners explain why they oppose the development guardian.co.uk

Now Tesco is back and open for business. For weeks following the violence it had remained boarded up, its hoardings festooned with black scrawlings. "The silver swan in living had no note," read one, "when death approached, unlocked her silent throat, leaving her breast against the reedy shore thus sang her first and last and sang no more." As of this week, though, Tesco sings again. Some feel that's the right decision. Anything else would be a victory for mob rule. Then again, others say, its return is a victory for a flawed planning process that clearly flies in the face of a significant proportion of the community.

Gus Hoyt, the local Green councillor, compares building a Tesco in Stokes Croft to "plonking a Whisky World in the middle of a Muslim area". If Tesco is a Whisky World, then the local mosque can be found at the headquarters of the People's Republic of Stokes Croft (PRSC). A group of volunteers, their goal is to encourage pride in the area by imbuing it with a distinct cultural identity. They have installed "Welcome to Stokes Croft" signs, and also run galleries, studios and a Dutch auction house – all available for use by the local community. Additionally, PRSC volunteers in hi-vis jackets patrol the streets picking up litter.

The PRSC is the brainchild of Chalkley and, unsurprisingly, a large part of his strategy involves making and selling china designed by local artists. "It's like Royal Doulton on acid," he says, showing me round his warehouse.

In the arches of a derelict former carriageworks, Chalkley has installed a series of wooden boards – each a canvas for a different graffiti writer. Felix Braun (known in graffiti circles as FLX) and his assistant Ben Jarvis, are standing on stepladders and daubing one of the boards with a modern reinterpretation of a stained glass window. Officially, graffiti isn't allowed, but Braun claims the authorities turn a blind eye. "We need to understand that graffiti can be a positive thing," he says. From his ladder, he points to four derelict buildings. "What has happened to these buildings," he argues, "is far more criminal than what we're doing visually to the outside."

A lot of research has gone into Braun and Jarvis's work; they've spent time analysing the area's aesthetic history at the Bristol records office, and they hope the finished piece will make residents engage more with Stokes Croft's heritage. "It's about making people think," says Braun, who teaches art in pupil referral units and youth centres. "It's about making people care. It's about returning dignity to the area."

It's also about creating jobs: Jarvis, a 22-year-old cabinet-maker, is one of four unemployed Bristolians enrolled in the Future Jobs Fund whom Chalkley, by arrangement with the council, has enlisted to help with the street murals project. The scheme isn't universally popular. Some residents don't approve of the graffiti aesthetic, while some squatters and anarchists don't like the way Chalkley has developed a relationship with the council – an institution many feel has neglected Stokes Croft in the past.

So not everyone agrees with each other. And not everyone objects to the arrival of Tesco. "This thing against Tesco," one squatter told the Observer recently, "It's the last thing on my mind." And, while 42 local shops signed a letter opposing the Tesco store , in some commercial quarters Tesco's arrival has been positively welcomed. Geoff Gardiner, who runs a local bike shop, Fred Baker Cycles, hopes the supermarket's presence will encourage more businesses to invest in the area. He also thinks many residents want the store. "We have a massive amount of social housing in this area," he says, "and there's a lot of people who don't have much money or an independent source of transport, and could really do with a Tesco."

Dave Trew, who for 16 years has run Jesters, the comedy club that leased the land to Tesco, feels activists have ignored the views of entrepreneurs such as him, even though he's invested a lot of money in the area. "There's an awful lot of simmering anger from people who've put millions of pounds into Stokes Croft," he says. Trew is not a fan of Chalkley, and he's not alone. "Dear Mr Chalkley," begins one comment on the PRSC blog. "Do you think that you could possibly stop parking your van across the cycle lane and the pavement? . . . Your aspiration to the leadership of the Stokes Croft community does not exempt you from normal legal and moral obligations." Ruder still, there's an obscene comment about Chalkley scrawled on one of the "Welcome" signs.

In most circles, however, Chalkley appears to be well-liked. "There are always going to be people who have a jab," says local photographer Jonathan Taphouse, "but at the end of the day they're just a group of creative people trying to grow Stokes Croft into an area we can be proud to live in. Not just another area manufactured by the machine. Personally, I love what they do."

It's hard to get Chalkley to sit down for an interview because he is constantly leaping up to greet passersby. A man hurries past who Chalkley says is very ill. Chalkley runs after him and they exchange a warm chat. "I'm just concerned nobody's looking out for him," Chalkley tells me when he returns.

High on the wall of one of Stokes Croft's cafes reads the epithet: "Stokes Croft – Beauty from Ashes." It is a sentiment everyone seems to echo - that the area is gradually being transformed. On 21 May, Stokes Croft hosted its second annual street festival – a communal event that until recently might have been unthinkable.

Four years ago, says Katy Bauer, curator of the newly founded Stokes Croft museum,"this was a sad, alienated community. People were nervous of each other." The homeless, and those from the local addiction clinic, were some of the most isolated. Now, says Bauer, "they are very much part of our community."

Bauer recounts how Chalkley would drive homeless people between hostels, or take them to their friends' funerals, just to make them feel included. "What Chris started doing was talking to everyone, and getting everyone talking to each other, and building bridges. And what came along with that was a sense of self-worth."

Countless other people have played their part in the rehabilitation of Stokes Croft. According to the local police, crime in the area has fallen by more than 50% during the past year.

Bauer has created a beautiful community space in the form of the Stokes Croft museum. Essentially a one-room art installation, it houses hundreds of objects relating to Stokes Croft's cultural life. "People are afraid of something political like Stokes Croft," says Bauer, "and the museum is a sneaky way of getting them to address and enjoy what is here without feeling threatened."

"Small as it is, Stokes Croft is the most vibrant, active, creative, revolutionary area currently in Britain."

Music by local musicians plays on the turntable. Works by Stokes Croft artists line the walls. Spider diagrams showing the links between Stokes Croft musicians crowd one corner; the ashes of a popular local homeless man, nicknamed Bear, rest in the window.

Perhaps the most unifying group in Stokes Croft is Coexist, a company that provides facilities for other community groups to use. It currently manages a building on Stokes Croft called Hamilton House, which incorporates a popular bar, canteen, and enough studio space, workshops, offices, conference and rehearsal rooms for around 170 local groups. The Saturday I visit, the Bristol Anarchist Bookfair is in full swing – three floors' worth of radical literature. Downstairs, hundreds are queueing round the block to buy a limited edition £5 Banksy print, on sale to raise funds for both local homeless groups and those facing legal charges following last month's riots. It's a provocative image: a Tesco-branded petrol bomb.

Another worthy collective is Eudaimon, an urban design group working to regenerate parts of Stokes Croft. Its next project involves turning a derelict site into a vertical garden, complete with a water fountain and bike pump.

"Lots of people say they find it hard to understand the 'big society'," says Coexist's director, Oli Wells. "Well, come to Stokes Croft and experience it."

The Boycott Tesco group is also interested in starting some sort of social enterprise. Its members aren't just interested in closing Tesco; ideally, they'd like to organise an alternative, ethical supermarket. One that still satisfies a desire for affordable products, but nevertheless relies on local suppliers, and has a more sustainable distribution model. "This," says Milne, "is not about nimbyism."

When the initial "change of use" planning permission was granted to turn the site in Cheltenham Road into a shop in November 2009, the applicant was listed as Jesters comedy club, the site's freeholders. Once it was discovered, four months later, that Tesco had leased the site soon after permission was granted, it was too late for people to object. It didn't stop them trying. Nearly 3,000 people wrote to the council to complain. They held rallies, lobbied councillors, swotted up on planning law, and made impassioned speeches at council meetings. But to little avail: the objections should have been brought up before the change of use decision.

Campaigners are furious and feel they were misled. They complain that not only was the original application barely drawn to the attention of locals, it was assumed that the shop would eventually house small, independent retailers. So the decision to grant initial planning permission, they argue, was based on the assumption that the shop only needed one or two short deliveries a week, rather than six, 30-minute-long lorry deliveries a day, as Tesco requires.

It's been a demoralising process. Now there's one last roll of the dice. A request to apply for a judicial review of the decision was rejected, but they are going to court on 12 June to appeal.

More generally, campaigners feel they've been failed by democracy and by the media. "I'm not condoning the violence," says Milne. "But why did people [riot] in the way they did? Because people feel completely unable to influence the day-to-day running of their lives. And because we live in a society which gives that kind of behaviour attention. The only reason you're here now is because it's become violent. We've been doing this peacefully for the last year and a half, and yet the media don't report it."

I meet a man called Paul Saville in the canteen at Hamilton House that evening. He's 25, a local student and activist. The week the store opened, Saville went down each day to take part in a vigil outside. "Every day I rang up the Bristol Evening Post saying they should do a follow-up story about it," he says. It took them six days to come down. By contrast, when the riots struck, Saville was immediately called by several national newspapers.

"I don't condone or condemn the violence," he says. "But all that came of the planning meetings was whether the sign should be wooden or not. It was heartbreaking. I was in tears." He looks up. "I love this place. It doesn't need a Tesco."