PALO ALTO, Calif. — No one takes reality for granted after working on the movie "Shrek."

From fur to flame, skin and water, the tangible world was rethought and remade for this computer-animated story about a misanthropic ogre and a sass-mouthed donkey who reluctantly rescue a bossy princess.

The film features impossible creatures romping in seemingly photo-real backdrops full of dappling sunlight, swaying leaves and trickling brooks.

"The computer was always good with hard things, like plastic toys and bugs, but it hasn't liked soft or translucent things, like animals or plants," said Jonathan Gibbs, an animator who developed new programs for "Shrek."

"Things are better now," Gibbs added. "This may be the first digital movie that doesn't have to restrain its story or style because the computers weren't up to it."

Three years of rendering the film's intricate fantasy world in ones and zeros affected how some animators saw reality.

"Sometimes you look up in the sky and say, 'Those clouds would never work. They look too flat, like they were cut out,' " visual effects supervisor Ken Bielenberg said, laughing. "You start to question everything."

"Shrek" is being celebrated as a landmark at its animation studio, Pacific Data Images — where "stylized reality" is the catchphrase spoken by workers in almost every department.

The new movie features some of the most realistic animated humans to hit movie screens so far and became the first animated feature selected in competition at the Cannes Film Festival in 27 years.

"We were just trying to tell a great story that's funny and charming and has a good message, but I'm really proud because I think we've also reached a new level of CG animation," said Aron Warner, the company's chief executive officer and a "Shrek" producer.

With "Shrek," Warner said, PDI has shown that digital animation is no longer restricted to tiny background characters in a crowd, or the static, sterile surroundings of a toy's playroom or an insect's earthen hovel.

Dressed in the jeans-and-flannel wardrobe of a Silicon Valley executive, he furrowed his brow when asked if there is anything left for computer animators to conquer.

"More holy grails? Sure."

After a pause, he smiled slightly and added, "But I can't think of anything right now.

The manipulation of light was the core of many of the breakthroughs in "Shrek."

Rendering feisty Princess Fiona (voiced by Cameron Diaz) would have been impossible without studying dermatology textbooks to determine how various types of illumination play on human skin.

"We wanted her to be very realistic," said effects supervisor Bielenberg. "So lighting Fiona was just like lighting Cameron Diaz. You want the sunset to reflect off her face in a way that's flattering. . . . Fiona may be a computerized princess, but she has her bad side."

Shrek, the ill-tempered ogre-hero performed by Mike Myers, has thin, trumpet-shaped ears that occasionally glow from bright background light. "It's like holding a flashlight under your hand. There's a red glow and you can sort of see some veins," Bielenberg said. "It's hard to do, but that's what would happen in the real world."

Animators also closely monitored the light and tiny shadows between the hundreds of thousands of hairs on the body of Donkey, a jive-talking beast of burden voiced by Eddie Murphy.

"We've all seen animals and we've all seen other people," Bielenberg said. "And we didn't want people to see these characters and think, 'Well, something is wrong here.' "

The movie isn't meant to be exactly like real life, Warner cautioned.

"We were aiming at a stylized reality. We could have made Fiona look more real, but we felt she would have looked out of place with the ogre and talking donkey," he said.

Pacific Data Images, which has won two Academy Awards for its effects technology in recent years, was founded in 1980. One of its first jobs was producing a title sequence for the syndicated TV show "Entertainment Tonight," and the company steadily increased its status through a series of innovative commercials and live-action movie effects.

PDI's biggest Hollywood break came in 1996 after the company joined a partnership with DreamWorks SKG co-founders Jeffrey Katzenberg, Steven Spielberg and David Geffen.

Two years later, the collaboration resulted in the critically acclaimed digital cartoon "Antz," in which Woody Allen voiced a neurotic ant named "Z."

PDI's partnership with DreamWorks has boosted the company's earnings as well as its reputation, with "Antz" earning more than $120 million in U.S. theaters and video stores.

"Antz" not only marked PDI's first major venture in the movies, it also sparked a rivalry with another fellow digital pioneer — the Disney-affiliated Pixar Animation, which has been honored 13 times by the Oscars.

Pixar's first "Toy Story" movie had also set a new standard for animation three years earlier, and PDI saw "Antz" as a chance to squeeze back into the digital spotlight. DreamWorks hustled the PDI film through production and it debuted several months before Pixar's similarly themed "A Bug's Life."

"It's a definitely a rivalry, but it's definitely friendly," Warner said. "This is a small community, and a lot of people here have friends and loved ones who work in these competing companies. So, it behooves us to be on good terms."

"Shrek" marks another PDI-DreamWorks coup, hitting theaters nearly six months before Pixar's upcoming "Monsters, Inc.," which also promises new computerized fur and skin technologies.

Luca Prasso, who supervised the body movements of the "Shrek" characters, said he delighted in taking friends from Pixar to see the movie at a special screening in April.

"You can finally say, 'This is what I've been doing for two years!" Prasso said. "'This is that thing I couldn't tell you about!"'

While Prasso pulled the strings on characters, Bielenberg and his crew were puppeteering the four elements — earth, air, water and fire.

The company won an Academy Award for its fluid technology in 1998, but the "Shrek" script called for something new: a scene in which water, beer and mud spill atop characters during a fight.

Mixing different fluids had never been done before, and effects animator Juan Buhler was drafted for some real-world tests.

"We had no idea how to do it, but that's what the story called for," he said, while a group of colleagues chuckled. "So these guys dumped a load of mud and water on top of me so we could study how they mixed."

The tests worked. The new software was devised.

Later, they found the water technology was the key to fire and wind.

"We wanted the background in 'Shrek' to be alive and have lots of movement," said Scott Peterson, who created the film's earthy greenhouse by digitally "growing" every blade of grass and every branch and every leaf.

"The difference in trees is usually a matter of gravity," he said, punching up the software on his screen. "You add a certain degree to make a birch and add more gravity to bend the branches for a willow."

An initial experiment with leaf-rustling wind failed, Then they modified an existing program for flowing fluids that made the liquid invisible while moving the leaves softly and smoothly, Bielenberg said.

Meanwhile, Arnauld Lamorlette wanted something outrageous for the film's rescue scene, in which Shrek and Donkey flee a flame-bellowing dragon across a moat of lava.

"So we spent a lot of time playing with fire in the parking lot — burning different things and looking at how the flames moved," Lamorlette said. (He joked that there were no human volunteers this time.)

Alas, realistic-looking fire burned beautifully atop animated torches and candles, but seemed unnaturally forced blasting from the dragon like venom.

The animator finally used PDI's fluid technology to render a stream of roiling bubbles that he later coated with a skin of flame.

"We had to be able to control the behavior of fire but remain close to reality," he said.

Then he corrected himself:

"I should say, 'stylized reality.'"