'[The play is my] contribution to piercing the silence around Armenian history. There was so much anguish and pain attached to this history. I didn't know what to make it into. I decided that my play would be like a boat that had to ride the river of those tears until I got docked somewhere and had the proper writer's perspective.'-- Leslie Ayvazian
Basing characters on real folks runs through the extremes
Public figures -- people who've been widely talked about in the news media -- are generally fair game for playwrights if they're dead. But if your version of one of these folks is distinctly unflattering, it's a good idea to add a disclaimer in the Preliminary Pages of your manuscript. This won't necessarily keep the lawyers away from your doorstep, but it may help. Here's what Tony Kushner
A DISCLAIMER: Roy M. Cohn, the character, is based on the late Roy M. Cohn (1927-1986), who was all too real; for the most part the acts attributed to the character Roy, such as his illegal conferences with Judge Kaufmann during the trial of Ethel Rosenberg, are to be found in the historical record. But this Roy is a work of dramatic fiction; his words are my invention, and liberties have been taken.
But be careful: public figures can also have a right of publicity, as can their heirs.
You can't obviously expose your mother or old Uncle Joe to ridicule in your play in a way that would allow others to recognize them. No matter how much you hate them and regardless of how nasty they were to you, people who are not public figures have a legal right to maintain their privacy. Even from a playwright in the family.
The same is true of your next-door neighbor or your roommate at school. Which leads to one of those Rules with No
Accomplished playwrights and screenwriters agree on at least one thing: If they use autobiography at all, they disguise the remnants to such an extent that only they can recognize the source in the final draft of the script.
Of course, if you want to make your play a love letter to Aunt Minnie you probably don't have to worry about whether she'll call her lawyer. But it doesn't hurt to ask before you write.
A word of advice: If this is your first venture into playwriting, you'll have enough craft issues to keep in your head without having to deal with lawyers. Go with an original [fictional] batch of characters now. Once you've gotten that initial recognition for your work from Competitions and Regional Theatres, you can think about the possibility of using real people as characters. That's what Anna Deavere Smith did.
http://www.vcu.edu/arts/playwriting/