For those who had trouble reconstructing Mulholland Drive's plot into story upon first viewing, here is a possible reading: Diane (Naomi Watts) wins a foxtrot contest in the Midwest and follows her acting aspirations to Los Angeles. Camille Rhodes (Laura Harring) beats her out for a movie audition, but the two become friends and later lovers. Diane watches Camille start to drift away and become involved with her director, Adam Kesher (Justin Theroux). Camille starts refusing Diane sex, and invites her to a party thrown on Mulholland Drive by Adam. At the party, Camille and Adam announce their engagement; also, Diane meets Adam's mother (Ann Miller), sees a girl (Melissa George) kiss Camille, and notices a cowboy (Monty Montgomery) walk by.
Diane's obsession with Camille deepens. She goes to a restaurant named Winkie's to pay a hitman (Mark Pellegrino) to kill Camille. He tells her he will drop off a blue key when the contract has been fulfilled. At some point, Diane switches apartments with her neighbor. In her new apartment, she goes into deep depression, sleeping for three weeks in the fetal position.
There she dreams up an elaborate fantasy. In that dream, Camille is split into two characters. The first, later identified as Rita, is involved in a car accident on Mulholland Drive (the same location as the party) and loses her memory. She takes sanctuary in an empty apartment, in a complex run by Coco (Justin's mother). Betty (Diane's alter ego) arrives in Los Angeles and goes to stay at that same apartment, left vacant by her aunt. There, she meets Rita and chipperly decides to help Rita get her memory back. They find money in Rita's purse (just as we had seen it in Diane's when paying the hitman) and a strange key (similar in color but not shape to the hitman's).
Meanwhile, the director, Adam, is being pressured by a secret syndicate to recast his lead actress. They want him to choose a girl named Cammie Rhodes — the second part of Camille's split-by-Diane personality, played by the woman who Diane saw kiss Camille — but he refuses. Going home, he catches his wife cheating on him. Adam retreats to a shoddy hotel, where he discovers his bankruptcy at the hands of the syndicate, and learns he must meet with a man called "The Cowboy." He does, and the idea is reinforced that he must choose Cammie Rhodes for his lead.
Many of the sublots revolve around a diner named Winkie's. In one, a man (who had been at the register when Diane paid the hitman) recalls his vision of doom to his psychiatrist. In another, the hitman, now working for the syndicate, searches for Rita, killing an old friend and questioning a prostitute (dressed in an outfit similar to the one Diane wore to meet the hitman). Betty and Rita go to Winkie's, where the waitress's nametag (which said "Betty" when Diane met the hitman) reminds Rita of a possible lead to her past. They look up the address belonging to that name and decide to go there after Betty's audition the next day.
At her audition, Betty is excellent, garnering the attention of a talent scout, who whisks her away to the audition for Adam's movie. But Adam concedes to casting Cammie Rhodes before Betty can audition, although he is obviously drawn to Betty. Betty leaves in order to go with Rita to see the mysterious Diane. They find Diane dead (in the same position Diane is sleeping) in her apartment.
Betty and Rita go home, awkwardly admit an attraction to one another, and make love. Rita cries out "silencio" in her sleep, insisting they go to a performance art theater. There, Betty weeps as a woman sings beautifully, but the evening's performances imply that nothing they see is real. Upon finding a strange blue box in Rita's purse, they rush home.
Once home, Betty disappears, and Rita opens the box with the blue key, only to be sucked inside. The dead Diane of the dream is told to awaken by the Cowboy, returning Betty to her physical body.
Now, the dream is over, and Diane wakes to brew some coffee. Her neighbor comes over to pick up dishes left behind in the apartment switch. Diane brutally masturbates on her couch and flashes back to her experiences with Camille: making love, going to the party, visiting her on set as she flirts with Adam. Her short scenes in the apartment are the only ones that we can take as happening "now," unclouded by Diane's memory or fever dream. At the end, regret and hallucinations overcome Diane, and she shoots herself.