Three years ago, Sam Gilliam was living in obscurity and his money was running out. He was nearing 80, his health was bad and he had no pension. But there was one thing he still had, one thing he had never given up on: the studio near his apartment in Washington DC.

In the 1960s and 70s, Gilliam was known for his “drape paintings” – huge, colourful canvases torn from their surrounds then knotted and swagged into sculptures. He was considered one of abstract art’s great innovators, one of the first painters to break the frame. Critics at the time described his work as “magisterial”, “enormously important” and “one of those watermarks by which the art community measures its evolution”. He had shows at the Whitney in 1969, MoMA in 71 and the American Pavilion at the Venice Biennale in 72. But he hadn’t had a major exhibition or representation for years, and was cut off from the art market.

Little did he know that, as he struggled to hold on, wheels were in motion to restore his reputation. The story of his extraordinary comeback culminates this week with a show of his work at Frieze Masters in London, rubber-stamping his credentials as a living master. But it starts in LA, where two young men were drinking heavily one night.

One was David Kordanksy, a gallerist with a taste for artists who are off the radar. The other wasRashid Johnson, an artist known for tackling the role of race in US culture. Kordansky was trying to woo Johnson to his gallery, and the two were sniffing each other out, namechecking artists they loved. At one point, the conversation turned to 1970s abstract artists – and it emerged that the pair were both enormous fans of Gilliam. “I’ve always loved geeking out over artists who have been ‘decentralised’,” says Kordansky.

Why was no one paying attention to this artist whose innovations, they thought, were on a par with Jackson Pollock’s paint-pouring? They believed Gilliam had being written out of art history because he was a black artist whose work, paradoxically, didn’t look black enough. It made him hard to classify. Not to mention the fact that his palette – all acid greens and hot pinks – seemed so ahead of its time.

“I knew he was still out there,” says Johnson. “But it wasn’t until David talked about curating a show of his work that I thought, wow, I might actually get the chance to meet the man.”

Was he written out of art history because he was a black artist whose work didn't look black enough?

Swing Sketch, 1968, one of Sam Gilliam’s innovative ‘drape’ paintings. Photograph: Fredrik Nilsen/Courtesy of David Kordansky Gallery, Los Angeles

Their first attempt to make contact was rebuffed, but on their second, they were invited into Gilliam’s studio. There they found not just the painter himself, but a whole body of work the world had never seen: pieces that preceded the drape paintings. In fact, they were their jumping-off point, with bright colours, taped lines and bevel-edged canvases.

“We were both like, ‘Whoa! What are these?’” says Kordansky. “And ‘Have you got any more of them?’” adds Johnson.

It was clear these paintings could form the basis of an entire exhibition. But when the two men suggested this, Gilliam began to weep. “I actually thought he was laughing at us,” says Kordansky. “Like, ‘you little burgermeisters, coming into my studio, thinking I would let you do anything with my work’. Then it turned out he was crying.’

“It was like a light in a dark place,” the artist tells me. “I did cry – at the idea that I might make some money and guarantee myself a future. It really caught me off guard.”

That first show in LA was a huge success. Not only did Gilliam sell nearly all of his early paintings, but over the coming years Kordansky placed many of them with major institutions like MoMA. “Sam stayed constant – it was the world that turned,” says Laura Hoptman, MoMA’s curator for painting and sculpture. “Finally, he popped back into focus.”

“Even when artists of colour are embraced by the canon,” says Johnson, “there is often a strict focus on a particular moment, rather than their career as a whole.” His goal now is “for people to gain the same familiarity with Gilliam that we have with Matisse or Picasso”.

Whenever Gilliam’s work is shown at Kordansky gallery, people say: “‘Who’s this exciting young Brooklyn painter?’ They’re stunned when they find out he’s 81 and living in Washington surrounded by his family.”

Being rediscovered has brought about one further change in Gilliam. “I’m painting again,” he says. “I feel like I’m starting all over. I feel like I’m just beginning.”

• See Gilliam’s work at Frieze Masters, 14-17 October.