‘Where exactly are you taking us?” my friend asked. Stars sparkled over black mountains as we drove along steep, dark roads into the lush Sierra Gorda of eastern Mexico. High in these hills lie the ancestral lands of the Huastec people, with villages, coffee farms, rugged slopes and powerful waterfalls. Centuries-old traditions flourish here, and we had come to experience one in particular.

In the colonial town of Xilitla, in San Luís Potosí state, where clouds swaddle mountain tops and citrus trees abound, each October the locals prepare the town’s whitewashed square for Xantolo (pronounced shantolow), the local version of Day of the Dead.

Xantolo has all the aspects of classic Mexican Día de Muertos celebrations: marigolds, sugar skulls, elaborate altars and skeleton decorations. But, while Day of the Dead is mainly celebrated within families on 1 and 2 November, with visits to cemeteries to clean graves and leave gifts of food and flowers, Xantolo is a rowdy, days-long party in the town square. It’s Day of the Dead with a carnival atmosphere, typically running from 29 October until 2 November throughout the Huasteca region.

Extensive public celebrations in places well-known for Day of the Dead celebrations, such as Pátzcuaro and Oaxaca, are organised primarily to entertain tourists. (Don’t let James Bond fool you: there was never a Day of the Dead parade in Mexico City before 2015’s Spectre film, though the city decided to organize one afterwards.) But at Xantolo, the partying is done by and for the locals.

As we arrived in Xilitla this time last year, we fell into a parade of revellers in wooden masks, depicting elderly people, skulls, animals and demons. We felt underdressed, but there were papier-mâché masks for sale, so we bought a couple and put them on while drinking cans of Sol beer as we watched the spectacle.

A man dressed up as a scantily clad woman cut through the crowd on a dirt bike, popping a wheelie to the delight of dancing children as a truck passed by, full of people dressed as skeletons twerking in the back. The parade led young and old to the town centre where a three-piece band (a violin and two guitar-like instruments, the bassy haupanguera and the higher-pitched jaran) played traditional Huasteca music. The town’s mayor greeted the crowd of more than 1,000: mostly people from surrounding villages and other parts of Mexico. We were invited to join the parade into the town’s cemetery, where bottles of tequila were passed around and no one seemed to mind one bit that we were strangers.

The following night, 1 November, was notably more solemn. It was dedicated to the procession of women dressed as Catrina: Mexico’s elegant female skeleton character. We joined a parade at least 100 strong, all in long gowns, flower headdresses and skeletal face paint (we brought ours from Mexico City), each holding a single candle. We moved at a slow pace through the cobbled streets, in silent homage to the dead. The following day is more aligned to the traditional pastime: families gathering in their homes to share stories about deceased loved ones.

Xilitla is one of the largest towns hereabout, but sees mostly Mexican tourists, with just the occasional foreigner. Its hotels and guesthouses include the impeccably clean, colonial Posada el Paraíso (doubles from £19 room-only) with a terrace for catching the sunset or sunrise over the jungle, and about 90 Airbnb options (from £15 a night). Bars and restaurants line the town square; the best is the 18th-century Casa Vieja, serving wine, tequila and gourmet Mexican food (the cecina – cured beef – tacos were phenomenal) with live latin jazz.

Xilitla is known for its coffee farms, its perpetual fog, its verdant hills, and a surrealist garden built by an eccentric Englishman, Edward James. His spirit lives on within the Las Pozas estate, where his strange structures coexist with the jungle. Open all year, it’s well worth a few hours of exploration. The nine pools (pozas) that give the property its name offer the chance for a dip and relief from the sticky heat.

Just steps away from here, and minutes from downtown Xilitla, bohemian Casa Caracol has three-person cabins (£35 a night), private rooms (£28), and beds in dorms and large tipis (£7pp).

The region abounds with waterfalls, including the 105-metre Tamul, about two hours’ drive from Xilitla. A small adventure outfit is based there, and booking isn’t necessary except in high summer. We showed up and took a three-hour round trip by kayak, with a stop at a cave that allows in just enough sunlight to quell doubts in swimmers’ minds about anything lurking under the water.

On the way back we stopped at Paco’s Seafood restaurant, along Highway 85, and enjoyed fresh-caught seafood from the nearby Veracruz coast (the grilled huachinango – snapper – was delicious) by the slow-flowing Tanquilín river. We washed the afternoon away with a couple of micheladas, crisp Mexican lager served with spicy tomato juice and lime, in a salt-rimmed mug.

Another popular excursion is the Sótano de las Golondrinas, or Basement of the Swallows, near the Querétaro border, which involves neither a basement nor swallows. About an hour and a half from Xilitla, it’s the largest known cave shaft in the world, 512 metres deep. It’s a popular destination for vertical cavers and base jumpers, but the main attraction is the swirling exodus of thousands of swifts and green parakeets at dawn each day, and their return at dusk. Witnessing the spectacle requires a 45-minute hike on well-marked trails through the jungle – remember to bring a torch.

There’s so much to do that’s fun and thrilling here, it’s easy to spend more than a few days in La Huasteca. And if they coincide with Xantolo festivities, all the better.

• Xilitla is about five hours by car or bus from San Luis Potosí, and about seven hours by car and nine by bus from Mexico City. The nearest airport is Ciudad Valles, about a two-hour drive from Xilitla, with flights from Mexico City. Mundo Extreme based in Xilitla, organises kayaking, rappelling and other tours with English-speaking guides from £8pp