A dive into Macedonia's past at Lake Ohrid

In the ripe heat of a Balkan autumn, a woman squeezes her Fiat up the old town's narrow lanes. When she drives past a church, she crosses herself rapidly from right to left, the Eastern Orthodox way. Then she applies lipstick, answers her mobile phone, and continues to manoeuvre up the cobbled street. We follow her because we're a bit lost.

We've just arrived in the gorgeous lake town of Ohrid, and immediately our rental car is accosted by locals with sunny smiles and dicey teeth. They offer us rooms, then direct us – still smiling – to our hotel. They direct us well, and the fact that our accommodation is called Vila Saint Sofia is a bit of a giveaway – but we're now too distracted by Saint Sofia itself to notice that the hotel is under our noses.

It's not the size of the church, it's how ancient it looks – as ancient as Christianity itself. An eerie angels' choir wafts from the dark interior, and its arches cast September shadows. Inside, the faces of saints are shockingly alive, and a huge, mono- browed Madonna with baby sits on a throne overlooking the centuries. Ten of them, to be precise. Everything here is at least 10 centuries old, including the famous plane tree in the centre of the old town's bazaar, the Stara Charshiya, still alive and almost well after one thousand years. The Ohrid lake itself is the oldest lake in Europe – four million years in the making.

Within an hour of arriving, I'm reassured that my visits here as a child – to meet my grandmother's family – hadn't left me with false memories. Ohrid really is one of the most spiritually charged places in the Balkans, and it's not surprising that it has been a Unesco world heritage site for 30 years. What's surprising is that it has remained under the European tourist radar. And that's true of the whole country. The Republic of Macedonia is so small, you might miss it altogether as you drive through on the way to somewhere bigger. We drove from somewhere bigger – Bulgaria – and the road to Ohrid felt like the last unspoilt drive in Europe. It's all mosques, church crosses, mountain ranges, sheep flocks, and the odd petrol station. Where is everyone? Everyone consists of just three million Macedonians and Albanians, and most are in the run-down capital Skopje and a handful of bigger towns.

The stony remains of the Roman Via Egnatia are not far from here, and along this road, you are at the confluence of old Europe and an even older Europe, Christianity and Islam, Yugo-nostalgia and the age of confusing nation-states like the Republic of Macedonia. Unprettily dubbed FYROM (Former Yugoslav Republic of Macedonia), it's not recognised as a state by neighbouring Greece because of the name issue – mention the word Macedonia to a Greek and they will instantly froth at the mouth. The argument is about Alexander the Great and who owns ancient history. The little republic has the misfortune of being named after a major ancient civilisation that spread over a somewhat larger territory, namely most of the known world.

But enough of messy Balkan politics, and back to Vila Saint Sofia, where things are looking very tidy. It's a lovingly restored, whitewashed 19th-century townhouse, so huge and handsome that it's hard to say whether it's in the shadow of the Saint Sofia church or vice versa. The rooms are well-appointed boudoirs with shower-cabins so elaborate they seem designed with Roman baths in mind. Next door to me is a quiet British couple who carry around Rebecca West's Black Lamb and Grey Falcon, the great 20th-century magnum opus on the Balkans. Next morning, over a breakfast of fluffy bread, honey, cold meats and Turkish coffee – here called Macedonian coffee, of course – she says to her husband: "It's amazing how little seems to have changed." She isn't entirely off the mark.

Ohrid's small-town bourgeoisie – like my grandmother's family – has kept its discreet charm and its eastern conservatism. Even in the second world war, when my grandmother was a young teacher here, jam was served in crystal bowls on linen tablecloths. My grandmother was not allowed to walk up and down the charshiya (market street) – only up – because it was indecent to be seen twice on the same stretch. Until the 1930s, families visited the town's Turkish baths, and on the way home women veiled their faces – because being red in the face was also indecent.

Later, when the war came and Bulgaria occupied part of Macedonia under an alliance with Germany, but afterwards changed sides, the Nazis threatened to burn the town down unless the locals handed over some Bulgarians who had escaped after being captured by the Nazis as the Bulgarian forces retreated. Instead, the town pooled all its gold to be used to appease the Nazis – 40kg of it, and my grandmother recorded donations in a municipal register. The last donation was the gold crucifix from the cliff-top church of Saint Ioan Kaneo at the end of town. But the tide turned and the Nazis cleared off, and the crucifix is still there, in the bijou Kaneo which, incidentally, had a cameo in the British-Macedonian film Before the Rain.

But now it's time for a swim, and the best beach is just out of town and at the end of Europe. The official summer season is over, but the lake is still 26C and like a mirror. The blue mountains at the other end are Albania. Just a short drive south along the lake, and we're in the border zone. The last building is the Saint Naum monastery complex, perched among crystal waters, mirage mountains, and magic. We hire a boat and enter an enchanted mossy forest called Black Drin where the biggest lake-spring lives. The boatman is a freelance photographer called Nikola who assures us that "whoever comes here will return. I know a Japanese guy who's been here 89 times". And when we go for a warm dip at the pebbled beach, we can see and touch the icy stream rushing in straight from the spring.

Inside the monastery courtyard, past the heavy gates and peacocks, are the relics of Saint Naum. If you put your ear against his coffin, you hear a clear, regular heartbeat. True, it's water dripping onto stone somewhere in the bowels of the monastery, but the effect is eerie. It's eerie, too, that hardly anyone is staying at the pleasant spa hotel inside the monastery – rooms start at a modest £35. "The season ends on 1 September sharp," the young manager shrugs ruefully, "and yet now is the best time to be here."

At five o'clock, the church bell tolls so portentously I'm sure even the illegal dynamite-fishermen on the Albanian side are startled. Thanks to them, the delicious Ohrid lake trout has been temporarily decimated and isn't available at local restaurants until further notice.

Back in Ohrid, afternoon strollers browse the charshiya shops. This is the place to buy Ohrid lake pearls, fine silver filigree, painted icons, a nargileh, or roasted chickpeas – just order 100g of leblebija and you'll blend right in. Then get happily lost in the cobbled back streets, indulge in Neapolitan waffles and cherry liqueur chocolates sold by the kilo at the sweet shop, watch a woman make handmade paper at an old-fashioned press, visit the House of Robevski and see how the rich of the Balkans lived, or sit among ancient stone ruins at the Lapidarium Café. It's time-travel: you start at the fashionable cafe-bars at lake-level and end up at the top of the hill with the medieval fortress of Tsar Samuil. Next to it – a Roman amphitheatre.

After an outdoor meal of trout (from another lake, don't worry), Macedonian salad (tomato, roast pepper, aubergine, onion) and a bottle of moreish local Tikvesh white wine, the obvious place to go is the belle époque building of the Jazz & Blues Duck Café on the waterfront. Sit among the exposed stone arches, gaze at the lake crossed by moonlight, and sip one of the most heart-warming liquors in the Balkans – the golden-coloured 40% lozova zolta rakija – as good as Scottish whisky, locals assure us, and they aren't wrong.

Late at night, we take a walk along the long lakeside promenade, where youths strum guitars, couples snog on benches, and the Biljana Springs – yes, more springs – bubble up from an invisible place. I dip my hand in the chilly water and remember the old song. Biljana was a girl who washed her linens here at the Ohrid springs, when a wine caravan from Belgrade went past. One of them caught her eye and he too fancied her, but alas, he was "finished" and this wine-laden caravan was taking him to his bride. No punch-line – just frustrated longing – like in real life.

In real life, my grandmother, Anastassia, left her home to pursue a frustrated love in Bulgaria, with my grandfather – but she also left her heart in Ohrid and told tales about her hometown the rest of her life. If there is such a thing as a spirit world, then her spirit is here, at the chilly, otherworldly springs of Ohrid Lake.

• This article was amended on 1 February 2010. The original referred to Bulgarians involved in a wartime incident in Ohrid as resistance fighters. It also said that gold donations were recorded in a school register. This has been corrected.