By JIM BESSMAN Sept. 20, 1999

NEW YORK (BPI) -- When Dolly Parton and her longtime associate Steve Buckingham had dinner in July in Los Angeles, he said bluegrass fans, when asked which artist they would most like to make a bluegrass album, overwhelmingly cited her.

"We were both shocked," says Parton, who will be inducted into the Country Music Hall of Fame Sept. 22. "But then I thought, since I manage myself now and have my own label and can do what I want, why not do it?"

In extremely short order, Parton recorded The Grass Is Blue in Nashville with Buckingham producing and with such luminaries as Jerry Douglas, Sam Bush, Stuart Duncan, Alison Krauss, and Rhonda Vincent accompanying, along with country songstress Patty Loveless. The album will be released Oct. 26 by Sugar Hill/Blue Eye Records, a joint imprint of Parton's Blue Eye and the bluegrass label Sugar Hill, which was recently acquired by Welk Music Group, where Buckingham is now senior vice president.

The Grass Is Blue is Parton's first bluegrass album and joins similarly high-profile bluegrass releases this year from Steve Earle, the Del McCoury Band, and Ricky Skaggs. It also follows Hungry Again, Parton's return to her country roots, which came out last year on Decca.

"I've always loved bluegrass , having grown up in and around mountain music and bluegrass," says Parton. "So I chose some songs I've been singing all my life, like the Louvin Brothers' `Cash On The Barrelhead,' and songs I love, like Johnny Cash's `I Still Miss Someone,' Flatt & Scruggs' `I'm Gonna Sleep With One Eye Open,' and `Silver Dagger,' a public-domain song I learned from my mother. I always loved Billy Joel's `Travelin' Prayer,' which I thought lent itself to pure bluegrass , and `Train, Train,' which I found off an old Blackfoot album and will sing on the CMA [Country Music Assn.] Awards show."

The late Johnny Bond (also a new Hall of Fame inductee) wrote The Grass Is Blue's "I Wonder Where You Are Tonight." Parton herself wrote four songs, including the title track; "Endless Stream Of Tears," which just missed the cut on Hungry Again; "Will He Be Waiting For Me," which she first recorded early in her career; and "Steady As The Rain," which she wrote for her sister Stella. The a cappella gospel "I Am Ready" was written by her sister Rachel.

"All the songs are personal and wonderful and familiar for me," says Parton, who needed less than a week to complete the sessions. "It went really fast because these are the world's best bluegrass pickers and singers, who've been doing these songs forever!"

Sugar Hill is really "stoked" about its new artist, says marketing director Bev Paul, for a number of reasons. "Besides the Country Music Hall of Fame, Dolly was named No. 34 on VH1's `100 Greatest Women In Rock 'n' roll' this summer," she says. "She's also up for the CMA's best album for Trio II [with Emmylou Harris and Linda Ronstadt] and is starring in Blue Valley Songbird, a made-for-TV movie showing on the Lifetime network on Nov. 1. So we have quite a bit of visibility going in."

Blue Valley Songbird was a song on Hungry Again. "I knew it was a movie when I wrote it and sold it to Lifetime," says Parton, who is appearing Nov. 2 on The Tonight Show With Jay Leno, with other talk show bookings forthcoming.

Parton may perform at New York's Lincoln Center or Carnegie Hall, she says, though no live appearances are planned other than TV.

Also forthcoming may be a reunion with Porter Wagoner, she says, and -- pending response to The Grass Is Blue -- a sequel or two.

"Who knows? I might start a whole new career," says the veteran country icon. "I'm just glad I'm going into the Hall of Fame -- and I get to sing, which means I'm not dead or in a rocking chair!"