Always Watching blog has a neat article about 25 independent films made on budgets less than $1 million (it's shocking that $1 million is considered cheap in moviemaking, but there it is).
Take, for example, El Mariachi:
Widely considered by many to be the definitive "indie" film, wrriter/director/producer/ cinematographer/editor Robert Rodriguez (of Sin City fame) made this ultra-low-budget production about a traveling mariachi who's mistaken for a murderous criminal in Mexico after raising $9,000 (only $7,225 which was spent) by volunteering for experimental clinical drug testing in Texas.
Rodriguez was able to keep the budget so low by adhering to a very strict expense limit, which basically forced him to not spend money on anything other than film stock, and even then only shooting one or two takes. Not having any real money to spend tested the ambitious filmmaker's abilities to solve problems creatively, leading to the implementation of a wheelchair instead of a dolly, having the actors signal scene numbers/takes with their hands instead of using a slate, using two 200-watt clip-on desk lamps for lighting, and most importantly, not hiring a film crew (he did all of the important work himself, and he used the actors who weren't being filmed to help out on the set).