The Onion A.V. Club has a nice roundup of some of the most notable film "twist" endings, good and bad. I thought this really nailed The Village:
The Village (2004)
Plot: The inhabitants of an old-timey village never leave proscribed boundaries so as not to run afoul of terrifying beasties that take their fashion cues from Little Red Riding Hood.
The big twist: Oh my God! It isn't an old-timey village at all! The movie is actually set in the present! (Cue melodramatic organ music.) The beasties are just villagers in silly costumes, and the senior villagers are modern-day folks who, perhaps horrified by the ubiquity of cheesy plot twists, chose to opt out of contemporary society.
Does it work? Put it this way: If you freeze-frame the moment when the climactic twist is revealed, you can actually see a leather-jacketed villager on water-skis leaping over a shark in the distance.
Could it work today? Unlikely