More than 3,600 years after an entire civilisation perished, its history lives on beneath the volcanic earth and shallow waters of Santorini.

The view from the boat is always best: this is how adventurers, heroes, pirates and princes have greeted Santorini for close on 7,000 years. The crescent-shaped island – the biggest in a cluster of volcanic remnants – sits in the Mediterranean like an oversized, submerged tiara. Santorini seems so ridiculously fairytale-like, I remember on my virgin voyage here I had to blink twice to check that I hadn’t nodded off on the chugging eight-hour ferry ride from mainland Greece. Titanic walls of rock jut up out of the ocean – a mille-feuille of colour, topped with postcard-perfect white homes: ‘frosting on a devil’s food cake’, as one local baker proudly describes it. Donkeys and mules wind their way up what seems to be a sheer cliff face from the Old Port. They head in the direction of the chink of glasses emanating from a string of cocktail bars dotted 250 metres above the harbour – and all sheltering under an endless sky.

Yet the genesis of this magical place is in truth not the stuff of fairytales – more of nightmares. By rights, Santorini and its neighbours should not exist. This mini-archipelago is one massive volcano that has blown sky-high dozens of times in the last two million years; what’s left above water is the volcano’s caldera and beautiful seismic waste. Each time this angry paradise erupts, it spawns legends and history, along with a fantastical geological playground; Santorini is a thing of fragile beauty with a changeling’s heart.

For me, the island’s strange charm stems not from the hedonism on offer – and there is plenty of that, with an infinite number of infinity pools, foot massages in thermal springs and black beaches to bask on – but from its ghosts. Santorini is the name that the island took in medieval times, but it was known to the Ancient Greeks as Thera, and before that simply as Kalliste (‘most beautiful’), because this was once home to what has to be one of the most extraordinary civilisations on Earth.

The traces of the inhabitants of this lost world are all around if you know where to look. Scramble through abandoned pumice quarries near the ancient site of Akrotiri to find their stone field-walls, or meet them face-to-face on the gorgeous wall paintings in the Museum of Prehistoric Thera in the capital, Fira. In the Bronze Age, more than 3,500 years ago, these men and women were the backbone of a luxury-loving egalitarian culture. On the walls of the museum, they relive their distant lives in colours so vivid they could have been painted yesterday. Life on a volcano would have been tough, with little fresh water. Isolation was a certainty. And yet the Bronze Age Therans exploited their strategic position midway between three continents – Europe, Asia and Africa – and reached out to the world around them.

On the painted walls which remain, preserved in museums in Santorini and in Athens, they sail to lion-filled lands, their women wear rich rouched skirts, and smiling young girls in gold hooped earrings, cornelian necklaces and gauze-fine bodices pick precious saffron.

Santorini offers not just a glimpse of a lost world, but a chance to be in two times at once. Volcanic soil has nourished grapes here for millennia, and evidence of wine presses dating back to the Bronze Age has just been excavated. Now, vintners in the Sigalas vineyard or on the quiet islet of Thirasia offer tastes of the type of wine that the ancient Therans would have drunk. Their two- and three-storey houses, which are still being excavated, would easily win contemporary design prizes – they are whitewashed and uncluttered, with oak staircases and snug indoor loos. The houses built in modern times in the villages of Oia, Finikia and Emporio are not that different in style.

However, the Bronze Age homes also featured anti-earthquake engineering – which is where the back-story of Thera darkens. This island is so seismic that any inhabitants have to be prepared for drama. In around 1625 BC, Santorini was the location of an eruption of truly epic scale. It is only now, thanks to new archaeological research, that light is being shed on what a massive event this was: three times the size previously thought, six times the scale of Pompeii’s legendary volcanic eruption and with a force 40,000 times that of the Hiroshima bomb. Scientists have calculated that an eruption plume stretched nearly 40 miles above sea level and electric storms ripped through the sky.

Today, divers are finding lava in a ring on the sea bed that stretches for more than 20 miles. When this place imploded, tree growth was stunted as far away as Ireland. This was an event of such mammoth proportions that it would have been remembered for centuries afterwards, and I’m certain that what happened spawned the tales of Atlantis. As the Greek philosopher Plato put it: ‘…there occurred portentous earthquakes and floods, and one grievous day and night befell them, when the whole body of your warriors was swallowed up by the earth, and the island of Atlantis in like manner was swallowed up by the sea and vanished…’

And the volcano is not quiet yet. Take a 10-minute boat ride across to the islet of Nea Kameni – in fact an oozing magma chamber – and the power of the gods is still palpable. Giant basalt rocks glisten like black molasses, while the earth weeps sulphur and jets of steam. The 17th-century eruption blew the centre out of the island, and seawater hurled into the void. Today, boats pass over what were once fields and homes. The chief archaeologist here, Professor Christos Doumas told me, with a crack in his voice, that one day he is sure we will find the lost Therans themselves.

Marvelling at the play of light around the caldera at sunset, the brilliance of the moon on the ocean, or the peace at dawn, we share experiences enjoyed by centuries of travellers. Settlers from Sparta recolonised the island seven centuries after the eruption, while later inhabitants welcomed Egyptian visitors and Eastern divinities; we can still see the remains of one such goddess, Basileia, in the pretty marble chapel of Agios Nikolaos near Emporio. Medieval Byzantines built churches on Mount Profitis Ilias, where a monastery still exists today. Santorini was believed to bring mankind closer to Heaven.

It is Santorini’s very impossibility that makes it so compelling – it is sublime on the surface, with a diabolic core. There is a sense here of being given the island, and time on it, as a gift. And while we touch its past, Santorini also encourages us to love the living of the present.

The article 'Greece’s island of the gods' was published in partnership with Lonely Planet Magazine.