Uzupis lies trapped inside a bend of the bubbling river Vilnia, known affectionately by the locals as the Vilnele. The name Uzupis means, roughly translated, "behind the river."
Much of it is a maze of ruins, shells of houses that have decayed over the years. For decades, the place was a no-go area of high crime, booze and drugs. Until now.
During the 1990s artists inspired by the menacing atmosphere and the cheap rent began to move in, and Uzupis quickly established itself as something of a center for the alternative arts.
Galleries, a bohemian bar and a theater specializing in radical reworkings of classical plays were set up. Until last year, an alternative fashion show, "Armada," was held every summer among the ruins.
And, in 1998, Uzupis declared independence.
Of course, despite all the prevalence of customs posts, car license plates, passports and notes in the national currency - the Uzh - this show of independence is complete nonsense.
"Uzupis is so small, there's enough room for everybody," announced Romas Lileikis, the self-styled president of the Republic of Uzupis, looking like a mad hatter in an outrageous red uniform.
Lileikis is a film director, best known for being "the father of Lithuanian TV commercials," according to one advertising executive. He filmed the very first locally-made ads in the early 1990s.
He shared a shaky wooden platform, which looked as unsteady as some of the surrounding buildings, with Vilnius Mayor Arturas Zuokas, fun-loving British Ambassador Christopher Robbins and Aiste Smilgeviciute, queen of Uzupis.
Smilgeviciute, who has helped pen a catchy new Uzupis national anthem, came third-to-last in last year's Eurovision song contest.
"Uzupis has no geographical meaning," continued Lileikis. "It has spiritual meaning. This is why more and more people come here every year. They feel good, because they can simply be themselves."
After more daft speeches, a parade ensued, made more colorful and lively than any in the republic's three-year history by the fact that April 1, 2001 happened to fall on a sunny Sunday. Boats made out of old tires, plywood and dustbins raced each other down the Vilnele.
Balloons trapped around a magnificent statue of an egg on an 8.5-meter column were released and cascaded into the crowd. Funds are being raised by the local "Parliament" of Uzupis to sculpt an angel for the column, but many agreed the egg makes a particularly attractive understudy.
But the fun and games of independence day also have a social function. "The Republic of Uzupis materialized out of a desire to meet, communicate and share what we have," said Lileikis afterwards. "We are a country of free people."
"I've lived here for 15 years," said 47-year-old citizen of Uzupis Zenonas Zabarovskis. "It's never been as cheerful and nice as it has over the last few years. Old, gray Uzupis with its ghostly ruins is coming alive. I'm not scared to walk on the streets any more, and I'm not scared that somebody might steal my bottle of beer or break my nose. The people of Uzupis are friendlier, different."
Mecislovas Bogdanovicius, a 50-year-old road sweeper, agreed. "I don't want to move to another part of Vilnius. It's like a village here. We all know each other, say hello."
Before he became mayor of Vilnius, Arturas Zuokas was a well-known businessman who moved into one of Uzupis' larger houses in the late 1990s.
He has helped make sure that the renovation of the Old Town of Vilnius has extended over the river. Gradually, the buildings stretching up the suburb's central street have been getting their first lick of paint for decades.
"We all are proud of Mayor Zuokas," Bogdanovicius exclaimed. "He's young, energetic, and not arrogant, and his initiatives are changing Uzupis for the better."
The long-time residents of Uzupis have woken up to the fact that this neighborhood is a beautiful one, with a tiny, hilltop church, street-corner water pumps and antiquated bridges over the Vilnele. Even the city morgue, which stands opposite the Zuokas mansion, is starting to perk up.
It may not be long before the locals' pride in their republic develops into a taste for some real independence.