Director Peter Jackson scaled new heights to create the first 'Lord of the Rings' sequel.

”Welcome to nuclear free Wellington!” chirps a highway sign outside the New Zealand city Peter Jackson calls home. Indeed, the Kiwi capital flaunts a thoroughly free aura. Cloud free: It’s October, nearly summertime Down Under. Smog free: The country’s chief gas emitters aren’t smokestacks but flatulent sheep, which outnumber the people. Attitude free: Even preteen skate punks blurt out pardon me’s as they whiz by. Yes, all seems fresh, pressed, and wholesome in this city by the sea.

All except Peter Jackson himself. His curly black hair and wiry beard are threatening a hostile takeover of his face, a polo shirt strains against his big round belly, and as always, he’s barefoot. Jackson looks uncannily like a hound dog’s much-nuzzled squeeze toy; if you poked him in the tummy, he’d probably make a noise like wee-HEEEE! Or at least not file a restraining order.

The guy has reason to be disheveled. Three days to go until he signs off on The Two Towers, his follow-up to last year’s The Fellowship of the Ring. That will leave him free!…to begin postproduction on The Return of the King, the capper to his Lord of the Rings trilogy. Jackson, producer-screenwriter-director-special-effects guy, has been working full-time on some aspect of Rings for four years now. And he is sick of it. ”I need to get it out of my head,” he says, propped up on his squooshy editing-room couch. ”I dream about it every single night…. I’m lying in bed and all I want to do is sleep and I have the crew standing around the bed wanting some direction as to what to do next. And I realize with horror I don’t even know what film I’m making.”

Hey, let us help, Peter! Towers is your chance to prove that Fellowship, which grossed over $860 million worldwide and earned 13 Oscar nominations and four statuettes, was no fluke! It’s the middle novel of J.R.R. Tolkien’s trilogy, the one without any real beginning or end! It’s the movie in which you have not one, but two key computer-generated (CG) characters, Gollum and Treebeard, whose realism (or lack thereof) could lead to a revolution in digital filmmaking or take audiences to the Binks of despair! Plus you have even more new characters to juggle, all with funny names (Eowyn, Theoden, Eomer, Faramir, and Stinky Joe! Okay, not Stinky Joe, alas). There, feel better?

In truth, Jackson, 41, should be feeling happy as a hobbit toking on sweet-sweet pipe weed. This time last year, he was the Guy Who Might Destroy New Line Cinema if His Movie Sucks. The studio (a division of AOL Time Warner, which also owns EW) had gambled big on Jackson, plucking his project from turnaround at Miramax, suggesting he make three films instead of Jackson’s proposed two, and committing to a 15-month back-to-back-to-back shooting schedule in New Zealand. Each film was budgeted at about $100 million, so there was one niggling concern: The director had never made a movie that grossed more than $17 million.

Still, Jackson’s background made him an ideal if unlikely Rings master. An only child, he was wielding a Super-8 camera by the time he was that many years old. At 17 he left school and applied for an entry-level job at Wellington’s Film Unit, the primary moviemaking facility in the country. He was refused. When the Film Unit went on the block three years ago, Jackson bought it. It is, in fact, the place where he’s putting the finishing touches on Towers. ”I now own the company that rejected me!” he exclaims between giggles.