Academy Award-winning director Ang Lee has made a movie about illusions. About what's real and what's imagined. About the stories we tell ourselves and the power they have over us. About patriotism, politics, love and betrayal.

"And it's about sex, too," he says, coyly.

Ohhhhhh, it sure is.

So much sex that "Lust, Caution," a subtitled flick set in Japanese-occupied China during World War II, was slapped with a rare NC-17 rating.

Lee, who won an Oscar for his direction of 2005's "Brokeback Mountain" and broke into an elite class of directors with the much-lauded 2000 martial-arts film "Crouching Tiger, Hidden Dragon," says he wasn't worried about the rating during the 12 straight days he and a skeleton crew spent filming three intricately choreographed sex scenes in a small sepia-toned room.

"It's a small exercise on life and death," he says.

The 52-year-old director has thought and talked a great deal about sex in conjunction with this movie, based on a short story by the beloved Chinese writer Eileen Chang, who died in 1995. It follows a young Chinese student who transforms herself at the behest of a patriotic group of friends plotting to kill a vicious Japanese collaborator. To get to him, she must seduce him.

Along the way, in the midst of so much pretending, she, too, is seduced.

She has to pretend "so sincerely, it's real," Lee explains. "And who's to say real sex is not like that? That it's not about performance for each other.

"It's not just a physical act. I think it makes an immediate chemistry that can be a catalyst to love and to many complex emotions ... and by all means it's great material for drama, which is meant to examine humanity. But we're shy to show it."

Lee says he is particularly shy. When he first read Chang's short story three years ago, he was appalled — "I was like, 'How dare she?' " — but the tale haunted him.

"It just kept coming back. I could feel the writers calling on me," he says. "Even recently I still felt like she was watching us, up there."

To do the story justice, the director says, the intimacy between the hardened intelligence officer (played by Tony Leung) and his innocent temptress (Tang Wei) needed to be profoundly honest, even in moments where it's jarringly cruel.

"It was very difficult for me to go through making those scenes," explains Lee, who plotted the tiniest details of each shot and verbalized every move he wanted his actors to make. "It's not natural. We're taught to be shy, to be subtle and modest about this. And we all have this sense of privacy. To peel that off and expose — it can be disturbing."

The movie claimed top prize at the Venice Film Festival, but Lee is cognizant that it "seems to be really tailored to the Asian audience," with references to historical events and cultural traditions, such as the recurring presence of mahjong.

As the film is released in the U.S., Lee is most worried about the reaction his young star Wei will receive. Because of that, he says, the bedroom scenes were edited to focus on the drama between the two characters.

What remains, he hopes, are glimpses of an entanglement that "will provoke viewers to read more into it — more than just sex."