While Cave Automatic Virtual Environment (CAVE) systems have long enabled room-scale virtual reality and various kinds of interactivity, their content has largely remained predetermined. We present Storycaster, a generative AI CAVE system that transforms physical rooms into responsive storytelling environments. Unlike headset-based VR, Storycaster preserves spatial awareness, using live camera feeds to augment the walls with cylindrical projections, allowing users to create worlds that blend with their physical surroundings. Additionally, our system enables object-level editing, where physical items in the room can be transformed to their virtual counterparts in a story. A narrator agent guides participants, enabling them to co-create stories that evolve in response to voice commands, with each scene enhanced by generated ambient audio, dialogue, and imagery. Participants in our study (n = 13) found the system highly immersive and engaging, identifying the narrator and audio as the most impactful elements, while also highlighting areas of improvement in latency and image resolution.