Director Madhur Bhandarkar is a man obsessed with movies. He wrote the story of Chandni Bar and for a number of years tried his luck with dozens of film producers before finding producer R Mohan, who was willing to back the young director's dream project. Bhandarkar explains that the story of women down on their luck and who are forced to work as dancers/prostitutes moved him enough to make them the heroines of his first film.

From the start of production, Bhandarkar was sure he wanted Tabu in the lead role. She plays the film's heroine, Mumtaz, a young Muslim woman who is brought by her lecherous uncle from Meerut to Bombay following riots between Hindus and Muslims in which her family are killed. Mumtaz is forced by her uncle to become a dancer at the Chandni Bar and then a prostitute. Bombay is seen as a dangerous world in which gangsters and the desperate are cruel and heartless, but against all odds, Mumtaz manages to find love, although her happiness is short lived. Chandni Bar is one of the most powerful films to be released in India in recent years.