A funny thing happened on my way to review the blind alley Gregor Schneider has fashioned out of Barbara Gladstone's ground-floor Chelsea gallery. It was wide open while under construction, so I went in, twice: once, a week before it was finished, then two days later. Both times it was chilling. A bare cavern outfitted in raw plywood and plaster, lit by a lone light, it was a world apart and unto itself, a dank passageway into an existential dimension, the Eastern Bloc in the early 1980s, or someplace haunted. Whatever it was, it wasn't here or now. It was Franz Kafka writ in wood, eerily familiar yet trashy and scary -- a place bums might go to blow one another. It sent shivers down my spine.

Then Schneider finished it -- I mean he really finished it. 517 West 24th, as it's titled, cuts a 15-foot-wide and 45-foot-long blunted L-shaped channel from the sidewalk into the Gladstone space. It is accessible 24 hours a day under a partially pulled-down metal gate (at night, a guard is on duty nearby). From the outside, this hole-in-the-wall, which used to be the inside of the gallery and technically still is, resembles a moldy loading dock. A sidewalk and a craggy floor have been fashioned out of cement. The walls have been shellacked in scum and covered in grimy blotches. There are oil stains, air ducts, drainpipes, a post, open sewer, industrial light and chunks of crumbling debris. As fine-turned and finished as it is, 517 West 24th is less mysterious and more stagy -- more Disney, Duane Hanson and Ron Mueck-like. It is so articulated and detailed that, while there's more to see, there's less to feel, less emotional room to move. Without the anxiety-inducing amorphousness of the unfinished piece, much of the uncanniness and dread have vanished. Now, it's closer to a film set than a time machine. I love it less but I still think it's impressive.

The rest of the gallery, reduced in size by nearly half, is empty except for the title on the wall, which would be the address of the space next door if there were one, although I guess there is now. If you'd never been here before, you'd think Gladstone, while maniacally clean and weirdly shaped, was between shows and that the gallery was situated on a posh block next to a creepy dead end. Visitors miss it altogether, thinking it's just part of the city.

Which is exciting, considering how blatant much recent installation art is. 517 West 24th, despite being a near miss, is nevertheless loaded. It's also a gutsy expansion of artistic vocabulary for this 34-year-old German artist. Since he was 16, and until 2001, Schneider worked obsessively on a single extraordinary sculpture/installation: Totes Haus, or Dead House, an actual house in Rheydt, an hour from Cologne. Here he constructed rooms within rooms, false walls, crawlspaces, stairways to no place, and dead ends (the entire structure, re-created inside the German Pavilion at the 49th Venice Biennale, deservedly won the Golden Lion prize). Essentially, Schneider created a walk-in Brothers Grimm tale laced with traces of Kurt Schwitters's Merzbau, Beuys's spiritualism, Nauman's panic rooms, Gordon Matta-Clark's aggressive architecture, Edward Kienholz's surreal tableaux, Robert Gober, Rachel Whiteread and something unmistakably German.

Overdetermined as it is, 517 West 24th nevertheless opens up bewitching windows. Like Maurizio Cattelan's best work, it carries an enormous amount of fake information, so much so that it turns into its own truth. It also adds a tantalizing psychological layer to the half-century-old tradition of the empty gallery as a work of art. In this, Schneider connects to contemporaries like Pawel Althamer, who earlier this year transformed a Berlin gallery into a ruined warehouse, and Christoph Bchel, who memorably turned the Michele Maccarone building into a house of horrors last year. As Matthew Barney plumbs the mystic depths of his own inner kingdom, Schneider explores anxiety -- so remarkably that curator Massimiliano Gioni dubbed him "the Richard Serra of fear." At Gladstone, Schneider turns the white cube into a black hole. 517 West 24th gnaws at the logic between inside and outside, real and imagined. When you're in it, you know you're in the Gladstone space, but it's as if the gallery had ceased to exist, swallowed itself, turned itself inside out, been mummified, or had somehow manifested its doppelgnger out of dark matter. It's like animal architecture, something a mutant mollusk might build. 517 West 24th is sculpture as daydream, crypt, cave and shell; threshold, trap, reliquary and wasteland.

Kafka wrote, "Everyone carries a room about inside him"; Guston made note of "a forgotten place of beings and things." It's wonderful and unexpected to see one of these rooms and some of these things out in the open. Schneider's schizy love and fear of space prevent 517 West 24th from being merely trompe l'oeil and allow it to touch on issues of history, economics, philosophy and sex. This, combined with his own hyper-sensitive, almost drugged-out ability to invest material with anxiety, suggests that for Schneider, space is a living thing to be handled, inhabited and annihilated.