They wrote some of the funniest, most memorable British comedy of the 20th century. Ray Galton and Alan Simpson's scripts for Tony Hancock had lines so brilliant, characters so absurd and jokes so sublime that they embedded themselves in the national consciousness.

Fans should prepare themselves for a treat, though, because the best may be yet to come. The Observer can reveal that Galton and Simpson completed a feature-length film script for Hancock that has never been made public. The Day Off, the gut-wrenching tale of a hapless bus conductor who just can't get anything right, has been hailed as a lost masterpiece and "the holy grail of comedy".

"It's probably the best thing they ever wrote," said Christopher Stevens, the author and journalist who stumbled on the yellowing pages at the back of a filing cabinet in Galton's house. "It's not just very, very funny and archetypally Hancock – you can hear his voice in every line – but it's also desperately sad. They'd reached this artistic peak which they developed with Steptoe and Son, where they made you laugh through tears."

Dreamed up in 1961 by the writers of Hancock's Half Hour and the comic's debut film The Rebel, The Day Off was supposed to be the second movie that would launch him as a global star. But to Galton and Simpson's disappointment, Hancock rejected it, asking for something "more international". Before long he had split with his agent, Beryl Vertue, and, by implication, with the writers as well. It was the start of a long decline that would end in his suicide in 1968.

Hurt by Hancock's dismissal of their work, Galton and Simpson put the script to the backs of their minds and moved on to other projects, such as Steptoe and Son, the enduringly popular sitcom, which began the following year. The Day Off took on a quasi-mythical status – most comedy historians assumed it had never progressed beyond a sketch. "And that was it, really: we didn't think any more of it," said Galton, who is now 81. Simpson, who is the same age, added: "When we did split with him, which was soon after, that was just put in the forget-me box and that's where it's been all the time."

The script was rediscovered last year when Stevens found an unmarked folder in Galton's cellar and asked Malcolm Chapman, a comedy historian who had been collating the archives, what it was. When he was told, said Stevens, he "dropped it on the floor. I couldn't quite process what Malcolm was saying."

Stevens – whose book on Galton and Simpson, The Masters of Sitcom: From Hancock to Steptoe, is published this week – was bowled over by the script, which comes complete with camera angles and scene-settings and tells the story of an under-confident romantic in a 1960s industrial town whose day off sees him become involved in a series of slip-ups, embarrassments and a failed attempt at love. "It should be filmed. I'm quite certain nothing is further from Ray and Alan's mind at the moment, but in a wonderfully perfect world it would be recreated as a 60s movie," he said.

Paul Merton, who has remade some episodes of Hancock's Half Hour, and Jack Dee were examples of contemporary comedians who could be suited to the leading role, he suggested.

Speaking to the Observer, Dee said the comparison with Hancock was "flattering" and that he would "love to read" the script. However, he warned that an actor would have to be careful about taking on such a role. Galton and Simpson, he added, "were brilliant. They had such subtlety to them, as well as being able to do such big comedy, and that's quite rare in comedy writers, I think."

Stevens, who includes a section of the script in his book, is right to say that the duo are not yet keen for The Day Off to be made. "You've got to bear in mind that neither of us have read it for 50 years. We've got to get it out and re-read it," said Simpson. He added: "I suspect it's too long, because everything we wrote in those days was too long. It probably needs half an hour taken out of it." Uncut, Stevens reckons The Day Off would run to over three hours.

For the writers, Hancock remains a genius. "He was a great performer. He never put a foot wrong," said Galton. "Anything we wrote for him he could read perfectly… His first reading of a script would be absolutely correct. We never had to say: 'No, no, not this way Tony, do it like that.' Never."

Although they do not appear to want to linger on the issue, there is no sign of bitterness about the film that Hancock turned down. Galton said that they had "never got around to discussing" what Hancock had thought of the script, and that they had little contact with him afterwards. The second series of Steptoe, they recalled, had opened on the BBC the same evening as the first episode of Hancock's eponymous, and critically savaged, ATV series. "It was all very sad from his point of view," said Galton.

Stevens said: "They pick their words very carefully. They don't want to impute blame to Tony because they know he was going through awful times emotionally. And they loved him."

Christopher Stevens will interview Galton and Simpson on stage at the Lyttelton Theatre in the National Theatre on London's South Bank at 6pm on Thursday 1 September. Tickets cost £4