Acid-folk sounds like an oxymoron. As John Oliver would ask, “how is this a thing?” It certainly wasn't something Peter, Paul & Mary, The Kingston Trio, or Burl Ives could have envisioned, even if someone slipped a loaded sugar-cube into their tea. But it's really not that bizarre when looked at in the context of its times.
Many of the quintessential psychedelic rock bands started out as folk musicians: Jerry Garcia from the Dead, Jefferson Airplane, Country Joe and the Fish, Tom Rapp from Pearls Before Swine, The Byrds, David Frieberg and Dino Valenti of Quicksilver Messenger Service (although the great duo lead guitarists, John Cipolina and Gary Duncan were rooted in rock and roll). In America, The Holy Modal Rounders first use the word psychedelic inserting it into their 1964 cover of Leadbelly's “Hesitation Blues.” Two years earlier American virtuoso guitarist, John Fahey recorded his 19 minute opus, “The Great San Bernardino Birthday Party”—which anticipates the psychedelic movement with its use of backward tapes, edgy off-kilter improvised guitar and unexpected back-up, Alan Wilson of Canned Heat on sitar, and the solo flute of Nancy McLean on other album tracks.
Holy Modal Rounders
The Holy Modal Rounders were from New York and were loosely associated with the cult beatnik turned yippie band, The Fugs—the name lifted from Norman Mailer’s novel, The Naked and the Dead, in which he substituted the word fug for fuck…. (There is an apocryphal story that Princess Margaret, the Queen's sister, on meeting Norman Mailer, quipped, “oh yes, you're that American who doesn't know how to spell fuck.”) The Holy Modal Rounders were, primarily, multi-intrumentalist Peter Stampfel and Steve Weber with playwright, actor Sam Sheppard filling in on drums in the early days. They had a brief glimmer of fame when “Bird Song” was included on the Easy Rider soundtrack. But for the most part, they've been criminally ignored by all but the most scrupulous collectors.
In the UK, Donovan is often associated with the British psychedelic folk movement for what many think are the definitive examples of the genre: “Sunshine Superman,” “Hurdy Gurdy Man,” “Atlantis,” and “Barabajagal” with the incomparable Jeff Beck on guitar. Personally, I see Donovan as a straight folk artist with a Dylan infatuation in the mid-sixties (“Universal Soldier,” “Catch The Wind,” “Colours”) with him drifting into sunshine pop as the age of Aquarius dawns.
The real practitioners of acid-folk and spokesmen for all things Anglo-Hippie are the Celtic, Asian influenced, Incredible String Band. Quirky and esoteric to the point of being abstruse, the Incredible String Band dance to the beat of their own bodhrans, dulcimers, and ouds. While it is an acquired taste, there was no one really quite like them, although Kaleidoscope (David Lindley 60's band) comes close.
Fraser & Debolt
In Canada, one of my favourite bands was the utterly obscure Fraser & Debolt who only released two albums. The first has disappeared; the eponymous second record has a few tracks floating around on YouTube. The band is a meshing of two voices, that of Alan Fraser and Daisy DeBolt, strummed acoustic guitars insinuated with Ian Gunther's snaky fiddle. Simple, yet compelling—with an otherworldliness that separates it from anything else you will likely hear elsewhere.