In the first months of 1962, Andrée Cleveland had a conversation with a friend about thalidomide. They both worked as nurses at Battle Hospital in Reading, and both were newly pregnant. They had seen the pictures of deformed babies in the nursing magazines, and they wondered what they would do if they learnt that their own babies were growing inside them without arms or legs or ears. Mrs Cleveland said she almost certainly wouldn't want an abortion.

On 27 September, she went into labour. It had been a normal pregnancy - three months of nausea, five of expectant glow, one of impatience. She was 26; this was her first child. 'I knew there was something wrong when I was giving birth and they asked me if I had taken any drugs during my pregnancy,' she remembers. She received much gas and air, and became increasingly apprehensive as the labour drew on. 'They wouldn't show me the baby straightaway. They showed her to me all wrapped up in a bundle, and the room was dark and the corridor was well lit and all I could see was her profile and I thought she looked fine.'

Returning to the ward in the middle of the night, Mrs Cleveland insisted on seeing her baby again. A nurse told her that she was being kept under observation in the nursery. 'I said, "Go and get my baby." She got the cot, and showed me the baby, and I took it all in. And no one said anything until they brought her to me 48 hours later.'

A year or so before, she had been to her doctor because she couldn't sleep. It was a stressful time - her mother and mother-in-law were both extremely ill. Her doctor prescribed Distaval. 'I didn't know anything about them, but they helped me. Then when I was pregnant, my husband said, "Why don't you take those tablets that helped you get to sleep before?"'

This was at the beginning of 1962, a few weeks after the drug had been withdrawn. 'They were still in the cupboard, so I took some.'

Forty years later, her daughter Simone, among the last thalidomide babies to be born in this country, is sorting through photographs in her ground-floor bedroom. This is in Jersey, she says, that's me with my sisters, the cat was called Duke, that's me on the roller skates my dad didn't want me to have. The pictures are disorganised, but show a life of loud activity. Many of the pictures show her short arms, with her three-fingered hands beginning at the elbow, and in some of them she is holding a bouquet of flowers on her wedding day, and the hand of her husband John Baker, and the arm of their daughter Lois, who is now almost six.

Her mother remembers taking her to the postnatal clinic, and the nurses saying, 'Oh, you don't have to undress her, Mrs Cleveland,' but she made a deliberate point of it. 'The other little toddlers there would come and touch and ask questions, and their mothers would shoo them away, but I said, "It's fine, they want to see what's wrong with her." And I used to go out with her when the schools came out so that I would meet all the children on their way home. They were far more direct than grown-ups, who were trying to pretend there was nothing wrong. The children would all stop and say, "Why is she like that?"'

In another part of her bedroom is a blue ringbinder with legal correspondence regarding compensation. The letters begin in December 1962 and end eight years later. In some of them, Simone is referred to as 'it', a nameless case in a bigger story, a devastating tale of medical negligence. The thalidomide story changed the way we license our drugs, and it caused us to question the price we sometimes pay for scientific progress.

Simone was one of about 10,000 thalidomide children born between 1959 and 1962. Their mothers had all taken thalidomide between 1957 and 1962, primarily as a sedative, a sleeping pill, something that could calm nerves and help with morning sickness. In the UK it was marketed as Distaval, Contergan and Valgraine, and great claims were made for the drug, not least that it was completely nontoxic. Unlike most barbiturates, thalidomide was considered so safe that even pregnant women could take it, and GPs soon knew it as a valuable alternative to Valium.

We now know of thalidomide for other reasons, for the suffering it caused. The drug restricted the growth of rapidly growing blood vessels in developing limbs and organs - if a woman took it during the first trimester of her pregnancy, certain things would happen to the growth of her foetus. Between the 20th and 25th days of development, there would be defects of the ears and eyes; between 26 and 30 days there would defects of the arms; between 31 and 35 days there would be defects of the legs. If she took thalidomide throughout this period, her baby, if born at all, might emerge merely as a trunk, with no limbs and severe organ damage.

Thalidomide was first mass-produced in Germany in 1957 by Chemie Grünenthal, a small company established during the postwar boom in antibiotics. In thalidomide it believed it had a product that would come to dominate a large and lucrative market: then, as now, companies would rush a drug out of the door as soon as the rules would allow.

Thalidomide was licensed with similar haste throughout the world. In Britain it was marketed by Distillers Co (Biochemicals) Ltd (DCBL), the parent company of which was better known for manufacturing whisky and other spirits. Only in the United States did more stringent controls ensure that thalidomide did not gain a license until further research was conducted. One American drugs administrator remembered what everyone else had forgotten: that the only drug with no levels of toxicity or potential side-effects would be one that was completely useless.

The tragedy was first uncovered in May 1961, but it took until the end of that year for the drug to be withdrawn in Germany and Britain (by this time more than 70m thalidomide tablets had been sold by DCBL alone). The scandal made front-page news for weeks, but the full details remained shrouded for a decade, obscured by the secrecy and judicial injunctions employed by drug companies and governments as parents and lawyers established liability and sued for compensation. By the time Distillers left the drug industry in 1962, new medicine-control guidelines were already coming into place in Britain and throughout the West.

Dr Frances Kelsey, the scientist who delayed the issue of a licence for thalidomide in the United States, thus ensuring it was never approved, became a national hero.

The 10,000 babies affected by thalidomide is a rough estimate, for it is impossible to calculate the number of miscarriages or stillbirths attributable to the drug. Thalidomide was prescribed in 46 countries. Some 4,000 of those born alive are alive today. About two-thirds live in Germany, and there are about 450 registered in the UK.

'The first thing I remember was having surgery on my hips when I was four to correct the curvature of a femur,' Simone Baker says. 'I can remember lying in the children's ward in a metal cot, lying in a plaster cast which went up just below my arms. The cast was on for months, and it was so wide that I had to be moved around in a double pushchair.'

She attended a local school for children with physical and mental disabilities. A few years ago she attended a school reunion and the memories were not particularly good. 'When I went through the doors it was quite scary. We used to be collected in a schoolbus that we called the Ambulance, and I was surrounded by people with very diverse problems, lots of kids having fits, children disappearing for operations and returning three months later with holes in their chests. I remember going round to one boy's house who was about four or five, and his mum came to the door and said he had died in the night. I was dealing with these sorts of things all the time.'

She was taught many practical things, including how to fall so that she wouldn't hurt herself, and she was given several primitive gadgets, such as a comb attached to a wooden broom handle to enable her to reach the back of her head. There were also intrusive instructions on how to best use the toilet. Not all of her memories are sour.

'I used to love my swimming lessons in this very warm pool. And I was good at maths. I did some sums for the first time, and remember bringing them up to the teacher and her putting ticks next to them all. The next time I did sums I put my own ticks next to them because I thought that was what we were supposed to do.'

She attended a regular primary school, where other children called her a spastic. She had a built-up shoe to compensate for her limp, but it was ridiculed and she stopped wearing it. She began walking on her toes. She became friends with a very fat girl called Wendy, another outcast, and together they refused to be bullied. There were more hip operations at the age of nine, and she was frequently being patched up after falling over in the playground. She did what all the other able- bodied girls did: painting, bike-riding, rounders, although she thinks she never got a round.

Occasionally she would miss a day to go to London to fight for compensation. She was paraded around a hospital in front of a review board, and was asked to remove her clothes unaided by her parents. She was then asked to get dressed again, and remembers crying with frustration. There were also questions for her parents, many of them impossible to answer. One letter asks them to provide 'any information available as to the child's future and its requirements' and an estimate of future expenses. One question asked, 'Can it attend an ordinary school?'

Simone's case was grouped together with 61 others, and Distillers Biochemicals made an initial individual offer of £2,500. As a court date neared, a final settlement was agreed of £15,000.

The money was sufficient for the Clevelands to move from a council property to their own large house, and to buy a car and invest in shares. 'There were cases where parents just frittered that money away,' Simone says, 'but that didn't happen with mine. When I was an awkward teenager I thought, "God, I wish I could get out of here and get my own place", but it was awkward because the house that we lived in was really my house. I would never have dreamt of saying to my mum, "Get out of here, I want to live here on my own." Normally it's the parents who push their children out.' (This dilemma was partially solved when her parents got divorced and her mother remarried.)

Simone also had her two sisters to consider, Michelle and Yvette, two and three years younger. 'My mum was always arguing with my dad about where they were going to live when she gets older,' Michelle MacIntyre, a lecturer in computing at University College, Northampton, told me on the telephone. 'They were always saying, "She'll want her own house, and we can't just live there." The thing that affected me mostly was that Simone was having these nice holidays with other thalidomide children, going off to the Canaries and Morocco. And she started getting access to money for certain things. Like at Christmas she could buy everyone presents with her own money. But she was always really generous - always came back from her holidays with great things for us.'

Her sister remembers her as an extremely pretty, talkative child, with a way of making people forget her disability within minutes. 'I don't think she hogged our parents' attention - our mum was really careful to treat us equally. Simone was always given jobs to do like the rest of us. But we did help her get dressed, and I didn't really like having to run round after her and switch the lights on wherever she went.' They weren't that close in their teens. 'A lot of this was because I felt she was quite bossy, and I resented that. And I think I probably forgot about all the things that were difficult for her.

'When me and Yvette had boyfriends, that must have been hard. When you go to a disco, the first thing you do isn't exactly go and chat up the thalidomide girl is it?'

'I had a car,' Simone says, 'which at times was far better than having a man because it made me popular and I could take my friends clubbing. When my sisters brought boyfriends home I never really thought, "Oh, I wish I had one."

'I do remember a conversation with my mum when she said to me: "Don't worry - you'll meet somebody some day, and he'll be the right person for you." But I also remember seeing my sisters' hearts broken over breaking up, and I thought, "Well, at least I don't have to go through that."' She felt she was under fewer illusions than many of her friends. 'I knew my limitations. I knew I was never going to be Kim Wilde.'

I had first met Simone seven years ago at an international thalidomide conference in southern Sweden. People had come from Japan, Scotland, Germany, Canada and the Netherlands to attend, and much of their time was spent socialising around a large pool and dancing and drinking in the evening. During the day there were advice sessions and debates, and one of the topics concerned an issue that had rarely occupied them before. Thalidomide was making a comeback, and not in a shy way.

They had learnt that the drug now had up to 50 different trade names, and was being manufactured in the United States, Canada, Brazil and Wales. In Germany it was being made by the same company that had patented it almost 40 years ago. This time it was not being sold as a sedative, but for a large number of uses for which it was never intended. In Brazil and Israel it helped those with leprosy. In the United States it prevented a major cause of blindness. In the UK it was being used for two severe symptoms of HIV and Aids. Throughout Europe it was found successful in graft-versus-host disease, a common complication of bone marrow transplant. And throughout the world it was being tried for cancer, tuberculosis and rheumatoid arthritis. Some medical researchers were talking of it as a panacea, almost a miracle.

The ingredients of the drug remained the same as they had always been, but it was now marketed by the names Sauramide and Synovir. The effects on foetal development remained unchanged, and prescribing doctors explained the care they took with education, labelling and warnings. One difference between the new and old drug is that researchers finally understood how it worked.

The rehabilitation of thalidomide began in 1965, when an Israeli doctor gave it as a sedative to leprosy patients. By chance, their skin lesions cleared up at the same time. Its anti-inflammatory activity was studied in the international medical literature, but until 1989 the central question remained unanswered: how did it work? A team at Rockefeller University in New York made the breakthrough when it found that thalidomide reduced the body's production of TNF-alpha, a fluid chemical that emerges from human cells to send messages to other parts of the body. Balanced levels of TNF-alpha are believed to be vital to the correct functioning of the immune system. Over-production causes weight loss and fevers, and excessive amounts are often found on tumours and in people with HIV.

The discussion in Sweden concerned the many births of deformed children in Brazil, where the drug was produced cheaply with inadequate warnings and was passed around readily among poor women. Everyone at the conference was horrified by this news, although some, including Simone, expressed the view that they would be happy for the drug to redeem itself in a strictly controlled, licensed manner.

Simone struck me then as she does now: forthright, assured, chatty, centred. She has worked most of her life as a secretary and administrative assistant, and serves as a part-time consultant for the UK Thalidomide Society and as vice-chairman of the Disabled Parents Network. When I visited her this summer she was off work with a broken leg, the result of a car crash while driving with her family in France. She showed me photos of the car after the accident, and she is justified in believing herself lucky to be alive.

'She thinks getting depressed is a waste of time,' her mother says, 'but she got depressed this time, after her accident. That was the only time I ever saw her like that. She does worry about her health, although she won't tell anyone about it. She is sometimes a very closed book. I can get through the outer core of her sisters, but not her. She's very stoical, very strong, and she laughs things off. But the accident was just something she could have done without. She hates being tethered, loves her freedom.'

Her sister Michelle refers to her as the hub of their family, the one who hasn't moved from Reading, the one she will go to for advice. 'But I think as she's got older Simone has become more disabled. We used to go to aerobics together, but when you see her now she just couldn't do that. Her joints have deteriorated, and she's put on weight, and there are back problems. When she was younger she was much more physically able.'

'My family think I'm quite abnormal,' Simone tells me. 'I've never had self-pity. I remember having a conversation with one of my sisters and she was saying, "Oh, you know those mornings when you wake up and never want to get out of bed." I said, "Actually I don't know what you mean." I've never felt like that. I once got something through the post which said something like: "As a disabled person, there must have been times when you considered taking your own life..." I thought: "What on earth are they talking about?"'

She has never tried attaching artificial limbs, as those she had seen only appeared to increase a person's disability: it was very hard to hold a pen or put Lego together. She believes the desire for false arms is predominantly cosmetic, and often foisted on children by their parents. 'Thankfully, most of us have grown out of that stage,' she says.

'When I was a teenager I think I tried to convince myself that I looked just like my friends. But I don't. From a distance people can see what's wrong with me. This is good, because by the time they come up to me they've been able to develop an idea in their head of what my problems are, and formulated an idea of what I can and can't do, which often isn't correct. But once I was at work at a desk, and someone came up behind and was introduced to me. I stood up, and this chap put his hand out to shake. I don't shake hands unless I really have to. But I put my hand out and this bloke staggered back and went, Ughh! His shock was so visible that I was embarrassed for him.'

She was introduced to another man at the end of the 80s. For years John Baker had run the disco at the annual thalidomide conference, but she had hardly noticed him before. Previously, her relationships had been with other thalidomide people, and she would question John about the degree of his commitment.

'I would say: "You do realise that I will never go on long country walks, and when I'm older I could be in a wheelchair" - all quite negative, because I wanted to make sure he wouldn't be scared off if things got bad.' She asked him what his fantasy was. 'I thought he'd say something like "being marooned on a desert island with a Page Three girl", but he said, "It's you walking down the road pushing a pram."'

Their daughter Lois was born in 1996 after a pregnancy devoid of morning sickness or sleeping problems. The newspapers had begun to run stories about the possibility of second- generation thalidomide births, and Simone had talked to someone with a thalidomide brother- in-law who had just had a baby with exactly the same disability.

She rang a colleague from the Thalidomide Society in Germany, who told her there had been a number of cases and that it was almost certainly genetic. 'How awful to think yourself part of this thalidomide family and then find you're not,' Simone says. 'You've lived with identity all your life, and then suddenly it's torn away from you.' In some German cases, the compensation for thalidomide was withdrawn.

Lois Baker was born with no defects, but at eight months was diagnosed with a dislocated hip. When she came into the hospital for her operation, her mother was escorted around the children's ward. 'I saw all those metal cots, and it took me right back and I started crying. A nurse said, "Oh, it's not that bad up here." I said, "It's just memories."'

This Friday Simone Baker will be 40, and a local hall and band are booked for a big party the following night. She has invited 80 adults and 50 children, several of whom are coming far. There will be people from primary school, former colleagues, and numerous thalidomide friends. Her family will all be there, and she hopes the band may persuade her mum to dance.

'I did feel guilt after having Simone,' her mother says. 'I always thought: "Oh, what will she think when she grows up?" It was only because of my selfish actions that she's like this - because I couldn't sleep. But when I talked to her as a teenager she said she didn't see any reason why I should feel guilty, so that alleviated things.

'She was due to be born on a Wednesday, which I didn't want, because in the rhyme Wednesday's child is full of woe. I was only young when I had her, so those silly little things were quite important.

'But she was born at 10 past midnight on the Thursday, so she has far to go. I remember lying in hospital just after she was born and I did pray.

I thought that if she was going to have a horrible life, please take her away now, but as far I was concerned I wanted to keep her. I'm glad I did.'