When he's not busy at his day job as an executive for Sun Life Financial in New Jersey, Keith Paul spends most of his time underground.

Not that he's complaining. Paul's basement in Montgomery County, just outside Philadelphia, has a home theater with stadium seating for six, a kids' room with a built-in swing set, a full gym, and a "fun room" with a wet bar, pool table, and eight arcade games.

"It's my home away from home," Paul says, without irony. A basement renovation this spring added about 900 finished square feet to his 5,000-square-foot home; the project cost about $275,000, including furnishings. "Obviously, I have a living room with a 60-inch plasma TV on the wall, but it just wasn't the focal point where we wanted to entertain. We wanted one area where we could all be."

The basement: That dark underbelly of a house, home to mechanicals, ductwork, and, possibly, the bogeyman. It conjures up images of a spider-infested storage space at worst, a '70s-era rec room with faux-wood paneling and plaid sofa at best. "Years ago I had a girlfriend, and when I'd go visit her, we'd go down to the basement," recalls Gary DePersia, a Hamptons-based broker at the Corcoran Group. "It was a good place to make out, but that's about it."

But there's been a substantial trend toward upgrades below ground: That half-finished, half-furnished dungeon has evolved into a luxury playground for the entire family. In modern high-end homes, the basement is often a sprawling, built-out space complete with theaters (and concession stands), spas, gyms, wet bars, living quarters for guests or staff, wine cellars, and indoor playgrounds for the kids. "Today, whether you have a $2 million house or a $20 million house, finished basements are important," DePersia says.

The trend started with media rooms, which are a natural fit for cool, dark spaces. As home-theater technology became more and more accessible, such spaces became more common—and started expanding. It helps that at a time when some communities have become sensitive to oversized buildings, upgrading one's basement is a way to get more living space without increasing the size of the house—or facing the expense, hassle, and potential opposition that entails. Plus, basements are the logical place to hide more outre amenities, like jungle gyms and arcade rooms.

"Things you can't get away with on a main level you can put into a basement," says Patrick Condon, C.E.O. of Finished Basement Co., a firm with offices in Denver and Minneapolis that specializes in, well, basements.