Truman Capote's plays and novels are probably contemporary America's closest approach to Leprechaun literature. Their atmosphere and characters embody a childlike, wistful world which, if and when it is forced to meet tawdry reality, usually leaves the encounter with a gently victorious smile.

The Charles St. Actors Company has given The Grass Harp a rather beautiful, lyrical production. The small stage, faced by the audience at both ends, seems exactly the thing for conveying the intimate lonliness of four characters who retreat into a treehouse; Esther Small's sets--especially the massive tree, but also the not-quite-perfectly-shuttered living room--provide extraordinarily fitting play areas and suggest even a forest without seeming cramped. Resourceful lighting--making use of darkness, candles, and even flashlights also takes full creative advantage of the possibilities of a small theater. Between the sets and the lighting, it is hard to see how The Grass Harp could ever have been put on on a standard stage without losing much of its airy intimacy.

This feeling is largely due to the director, John Heffernan, who successfully sustains a flow of nuances. Delicacy is certainly one of his fortes; understanding of understatement and detail are others. His blocking turns a two-faced stage into an advantage, and, less technically, his bits of madness and sadness are woven into the actors and action as pleasantly as Capote wove them into the script.

The play is about two sisters, their orphaned nephew, their colored maid who pretends she is an Indian, and several concerned villagers--concerned because the meek, faded, slightly demented sister has run away from home (with sister, maid, and a stray retired judge), away from the other sister, the fierce faded sister, who wanted to make a big business out of the meek one's only possession: a secret--a recipe for an effective medicine, made from herbs. The fugitives flee to a tree house; in a few speeches about themselves they overcome some of their loneliness and, at the end, even though they have to return home, their way of life scores a victory.

Jane Cronin plays the meek sister quietly, almost mutely, almost ideally. Her searching, nearly childlike smile needs no words to help it unfold the character's frail tenderness. Olympia Dukakis, as the maid who is at one point compared to a walrus and who never travels without her goldfish, often squawks excellently, although her accent seems queasy. Her face is powerful. Richard Gavin plays the nephew with grace, youth, and a good balance of strength and weakness; he makes an effective contrast to the old judge, played by the director. Ree Christiansen, the fierce sister, screws her icy nerves up so tightly that it is nearly distracting wondering whether she will break. The rest of the fairly large cast, especially Roz Faber (in both of her roles) and Gloria DePiero, all add to the production's success.

Still in its first season, The Charles St. Theater is proving itself one of the finest off-Broadway playhouses--finer than a great many of the increasingly slick off-Broadway theaters in New York.