Mumtaz (Tabu) is a naive young rural woman whose family is killed in communal riots. After her village is burnt to the ground, she moves to Mumbai with her uncle, the only family member she has left. They are desperately poor and her uncle persuades her to become a bar girl (dancer) at Chandni Bar. He promises her that this is merely temporary, until he is able to get a job. Mumtaz is shy and loathes the work, but she forces herself to dance and flirt. However, her uncle doesn't keep his word; he lives on her earnings, drinking them away, and never gets a job. One night, after spending time drinking and watching the girls dance at the bar, Mumtaz's uncle rapes her. Mumtaz is distraught and emotionally confides in the other dancers. Even though they console her, Mumtaz is given a reality check when she realises that many other women at the bar have equally disturbing and painful stories. She manages to pull herself together and immerses herself in her work at the bar.

Eventually, Mumtaz catches the eye of a gangster called Pottya Sawant (Atul Kulkarni). He attempts to seduce her and finally resorts to paying her for sex. Mumtaz, however, cannot go through with the deed and tells Pottya about her rape. Enraged, Pottya kills her uncle and marries Mumtaz. Mumtaz leaves the bar, and Pottya rises up the criminal ranks quickly, despite his volatile temper. The couple live a happy life with their son, Abhay, and daughter, Payal. Mumtaz wishes for Abhay and Payal to be educated, and stay far away from her world of dancing girls and Pottya's world of gangsters.

Pottya's attitude and temper cause him to prematurely kill another gangster, which results in him losing friends and connections in the criminal world. He becomes a target for the police. He is captured and killed in an operation to 'eliminate' various Mumbai gangsters. A grieving Mumtaz slowly runs out of money and soon realises that Pottya has left behind a large amount of debt. With no source of income, she is forced to return to work at Chandni Bar.

Years pass and Mumtaz still works at Chandni Bar: now as a waitress. She manages to provide a stable environment for Abhay and Payal, who are teenagers. Mumtaz encourages her children to do well in school, so that they can move away from their surroundings of crime and gangs. Abhay is very studious and performs well in classes, but soon befriends a group of troublemakers and delinquents. Despite being warned by Mumtaz, he continues to see his friends. One day, Abhay and his group are arrested by police for extortion and held in a juvenile prison. Even though he was not part of the crime, his reputation as Pottya's son causes the police to ignore his pleas of innocence. At the prison, Abhay is raped by a pair of older inmates.

Mumtaz attempts to talk to the police, to no avail. She meets with some influential people, who have police connections and can get Abhay released. They agree to help her but demand a high price, which she must bring to them in less than two days. Mumtaz has no choice and sells her body to obtain the money. She is still short. Seeing her mother's plight, Payal takes up dancing at Chandni Bar and brings the money to her troubled mother.

Having secured the money, Mumtaz is able to get Abhay released. However, she notices that he is not the same happy boy he was a few days earlier. Instead, he is cold, ruthless, and is looking for revenge. Abhay makes connections in the crime world and gets a gun, which he uses to kill the boys who raped him. Mumtaz arrives on the scene and is devastated to find that her son has become a killer.

It is implied that Payal is following in her mother's footsteps, and Abhay is set to be another Pottya.

• Tabu as Mumtaz Ali Ansari
• Atul Kulkarni as Pottya Sawant
• Rajpal Yadav as Iqbal Chamdi
• Vallabh Vyas as Habib Bhai
• Vinay Apte as Inspector Gaikwad
• Ananya Khare as Deepa Pandey (bar girl)
• Upendra Limaye as Deepa's Husband
• Rajanna as Uma Shankar Pande
• Minakshi Sahani as Payal Sawant (Mumtaz's daughter)
• Vishal Thakkar as Abhay Sawant (Mumtaz's son)
• Abhay Bhargava as Hegde Anna
• Suhas Palshikar as Irfan Mamu (Mumtaz's uncle)
• Shabbir Mir as Uncle Pinto

Chandni Bar won four National Awards. Tabu received Best Actress nominations at the Filmfare Awards and Bollywood Awards. Atul Kulkarni received a Best Supporting Actor nomination at the Star Screen Awards. Madhur Bhandarkar was nominated for Best Director in several venues but did not win.

2002 National Film Awards (India)

• Best Actress - Tabu
• Best Supporting Actor - Atul Kulkarni
• Best Supporting Actress - Ananya Khare
• National Film Award for Best Film on Other Social Issues

2002 IIFA Awards (India)

• Best Actress - Tabu

2002 Star Screen Awards (India)

• Star Screen Award Best Story - Madhur Bhandarkar

2002 Zee Cine Awards (India)

• Best Actress - Tabu

The film does not feature any of original tracks. But Bollywood Hindi songs feature many times in scenes in the dancing bar.

The theme music is a classical aalap rendered by Shubha Mudgal.