"WHAT'S up, Doc?" enquired John Lasseter.

"Up," replied Pete Docter.

He was handing Lasseter the first draft of what was to become one of Disney Pixar's most loved and funniest cartoons. Docter's aptly-titled Up is a gorgeous, high-flying bittersweet love story about a grieving grumpy old man Carl who uses thousands of gaily-coloured helium-filled balloons to float away into the heavens in his demolition-threatened home. Suddenly, high over the clouds, there's a knock on the door. Clinging to the veranda outside is a terrified boy scout, Russell, eager to assist the elderly. "It made me cry just in the reading of the treatment," recalls Lasseter. "It's just the kind of movie I love to watch. I remember all movies that have affected me and made me emotional."

Since opening Cannes Film Festival in May – the first animation film ever to receive such an honour – Up has grossed over $400 million worldwide. Reviews range from superlative to ecstatic. "The emotion of the story was there from the very beginning," says Lasseter, "you could feel it on the page. My wife said we'd need to invent 3-D goggles with inside windscreen wipers just for the tears." He was at Venice Film Festival three weeks ago to receive a Golden Lion award for his pioneering work at Pixar. Alongside him were Docter and fellow directors Brad Birt (Ratatouille) and Andrew Stanton (WALL-E), who have been his key collaborators in revolutionising computer animation, beginning with the breakthrough full-length feature Toy Story in 1995.

Docter (41) was one of the first animators signed by Lasseter in 1990, soon after he left Disney to set up Pixar with Steve Jobs and Ed Catmill. Docter developed the story and characters for Toy Story, wrote the initial story treatment for Toy Story 2, made his directorial debut with the Oscar-nominated Monsters Inc and provided the original story idea for the Oscar-winning WALL-E.

Tall, lanky and excessively shy at school in Bloomington, Minnesota where he was picked on by bullies, Docter got the idea of a floating house held up by balloons from his childhood longing to escape. "I think every kid imagines when they get a helium balloon, 'wow, I could float off into the sky'," he says. "I was bouncing around ideas at the time with writer Bob Petersen about the kind of grouchy old men played by Walter Matthau or Spencer Tracy. The two images came together in Carl, keeping to himself in a home filled with memories of his lost wife Ellie and just wanting to join her up in the sky."

When Petersen was pulled away to work on Ratatouille, Docter hooked up with Tom McCarthy, who wrote and directed The Station Agent and The Visitor. "I loved The Station Agent. It was one of the models we were using for Up with its theme of this sheltered guy who stays to himself and eventually collects this odd family. Tom brought in the character of the young boy Russell, but at heart, it was still the same story of an old man who slowly steps back into life. We tried to design all the characters to be elements that would pull Carl out of the safety of his little house and what he was trying to do in getting that house to the film's mythical Paradise Falls in Venezuela, where he and his wife Ellie had dreamed of going some day."

Docter establishes the emotional core of Up with a series of flashbacks of Carl and Ellie playing together as a couple of misfit children sharing imaginary adventures. The culmination is an extraordinary wordless five-minute sequence – unique in cartoon history – taking them through their entire childless life together and the unbearable shock and sadness of Ellie's eventual death. "We try to make our films with lots of layers. Kids respond to the fantastical birds and the talking dogs, which I love too, and adults tend to respond to the love story emotions," says Docter, whose daughter Ellie provided the voice for the young Ellie and also made some of her childish crayon drawings.

Although Up is shot in 3-D, the device never becomes intrusive. Docter uses it as just another story-telling tool, the same as colour, music and lighting. "When we make a movie, I always say we have to do three things really well," says Lasseter. "Tell a compelling story that keeps people on the edge of their seats. Populate that story with really memorable and appealing characters. And put that story and those characters in a believable world – not realistic, but believable for the story you're telling."

Docter is true to this mantra, giving the entire film a caricatured look while allowing the emotions to make it feel real. Carl is drawn in square shapes, square-faced and square-bodied, while Russell and Ellie are both round. "Even in the set design, the pictures in the house of Carl are in square frames, while his wife is in circular frames."

The Toy Story films, originally released in 1995 and 1999, have been re-rendered in 3-D. Both were premiered in Venice in advance of their release on 2 October, laying the ground for a new sequel Toy Story 3 next June. "All our stories at Pixar are originals," says Lasseter. "The only reason we like to do sequels is when we come up with another story using the same worlds that's as good if not better than the original."

Sequels of Cars and Monsters Inc are also being mooted, but Lasseter is not yet ready to confirm this. Since Pixar's $7.4 billion merger with Disney in 2006, he has been the creative head of the entire organisation. "I'm tied up so much overseeing Pixar and Disney animation and the theme parks I have to keep reminding myself that – as Carl discovers – life is not a rehearsal, you have to live every day to its fullest and be reminded of all the wonderful things that happened with your family and that you can't relive them. You've got to cherish them while you have them."

Docter's success with Monsters Inc and now Up has prompted suggestions that he should attempt a live-action film, the implication being that animation in some ways cannot be taken seriously. "I'm more intrigued by the artifice of animation," he says. "I know it's all manufactured and controlled. You can have characters arguing while the actors involved may not be in the same room or the same city or the same month – crafting all that is part of the fun for me. Animation is all about doing what live action can't."

'Up' opens on 9 October, 'Toy Story 3D' on 2 October