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.

Condon's clients have requested 1950s-style diners and re-creations of their favorite pubs. Another trend, he says, are "Zen areas," relaxation spaces and yoga rooms—often boasting water features—that connect to full gyms, which sometimes even have locker rooms.

Joe Farrell, owner of Bridgehampton, New York-based custom homebuilder Farrell Building Co., says a standard basement in the resort area comes with elevator access, a full gym, a movie theater with stadium seating and concession stand, a wine cellar, and a sauna and steam room. He's currently building a house with a basement featuring twin bowling alleys, a kids' recording studio and performance space, and a "princess area" with a miniature beauty parlor.

"Basements used to be the thing where somebody would want to spend 15 or 20 grand and gussy up a little finished area," says David Crane, principal of Crane Builders in Nashville. "Now people want basements as nice as the rest of their house."

Bob Hampton, the former president of Jones Media Group, which was sold to Triton Media Networks in June, has four living areas in his Denver home, including one in the master suite. That didn't stop him and his wife, Janis, empty nesters, from finishing about 2,200 square feet of their basement. It now has a bar, wine cellar, steam room, media room, and finished storage area. The initial plan was to create a home gym—with a television for each of them—and a ballet area. But, says Hampton, who spent about $300,000, not including furnishings, "We hated the thought of just finishing a part of it."

That type of evolution is increasingly common, says Philadelphia-based designer Mark Oser, noting that dedicated media rooms ignited the trend. "Now that you're doing this high-end theater, you can't just put it in an ordinary basement," he says, deconstructing the new basement psyche. "That leads to, 'Well, it'll be nice to have a bar with it, and a living room with a fireplace.' 'Well, we don't feel like running upstairs; let's put a bathroom down there, let's put a whole kitchen down there.'"

And everyone from builders to brokers to homeowners are cashing in on the trend. "I try not to use the term basement," says DePersia. "I call it the concourse level."