A dark-haired woman is the sole survivor of a car crash on Mulholland Drive, a winding road high in the Hollywood Hills. Injured and in shock, she makes her way down into Los Angeles and sneaks into an apartment. Later that morning, an aspiring actress named Betty Elms arrives at the apartment, which is normally occupied by her Aunt Ruth. Betty is startled to find the woman, who has amnesia and calls herself “Rita” after seeing a poster for the film Gilda starring Rita Hayworth. To help the woman remember her identity, Betty looks in Rita’s purse, where she finds a large amount of money and an unusual blue key. At a diner called Winkie’s, a man tells his companion about a nightmare in which he dreamt there was a horrible figure behind the diner. When they investigate, the figure appears, causing the man with the nightmare to collapse in fright. Elsewhere, director Adam Kesher has his film commandeered by mobsters, who insist he cast an unknown actress named Camilla Rhodes as the lead in his film. Adam resists, but after being thrown out of his house when he finds his wife cheating on him, he learns that his bank has closed his line of credit and he is broke. He agrees to meet a mysterious figure called The Cowboy, who urges him to cast Camilla Rhodes for his own good. Meanwhile, a bungling hit man attempts to steal a book full of phone numbers and leaves three people dead.
While trying to learn more about Rita’s accident, Betty and Rita go to Winkie’s and are served by a waitress named Diane, which causes Rita to remember the name “Diane Selwyn.” They find Diane Selwyn in the phone book and call her, but she does not answer. Betty goes to an audition, where her performance is highly praised. A casting agent takes her to a soundstage where a film called The Sylvia North Story, directed by Adam, is being cast. When Camilla Rhodes auditions, Adam capitulates to casting her. Betty locks eyes with Adam, but she flees before she can meet him, saying she is late to meet a friend. Betty and Rita go to Diane Selwyn’s apartment and break in when no one answers the door. In the bedroom, they find the body of a woman who has been dead for several days. Terrified, they return to their apartment, where Rita disguises herself with a blonde wig. She and Betty have sex that night. At 2 a.m., Rita insists they go to a theater called Club Silencio. The emcee explains in different languages that everything is an illusion; Rebekah Del Rio comes on stage and begins singing the Roy Orbison song “Crying” in Spanish, then collapses while her vocals continue—her performance was a recording. Betty finds a blue box in her purse that matches Rita’s key. Upon returning to the apartment, Rita retrieves the key and finds that Betty has disappeared. Rita unlocks the box, and it falls to the floor with a thump.
Diane Selwyn wakes up in her bed in the same apartment that Betty and Rita investigated. She looks exactly like Betty, but is a failed actress driven into a deep depression by her failed affair with Camilla Rhodes, a successful actress who looks exactly like Rita. At Camilla’s invitation, Diane attends a party at Adam’s house on Mulholland Drive. At dinner, Diane states she came to Hollywood when her Aunt Ruth died and left her some money, and she met Camilla at an audition for The Sylvia North Story. Another woman who looks like the “Camilla Rhodes” from earlier kisses Camilla, and they turn and smile at Diane. Adam and Camilla prepare to make an important announcement, but they dissolve into laughter and kiss while Diane watches, crying. Later, Diane meets the hit man at Winkie’s, appearing to hire him to kill Camilla. He tells her she will find a blue key in her apartment when the job is completed. In her apartment, Diane looks at the blue key on her coffee table. Distraught, she is terrorized by hallucinations and runs screaming to her bed, where she shoots herself. A woman at the theater whispers, “Silencio.”