Shankar Prasad, nicknamed "Shankar Dada" (literally "Brother Shankar") is a bhai or gunda: a crime don in Hyderabad. Given that his father had wished him to be a medical doctor, he creates the faux Sri Satya Prasad Charitable Hospital (named after his father) and pretends to live in accordance with this wish whenever his father (Girish Karnad) and mother (Venniradai Nirmala) visit him in Hyderabad.
One year, however, Shankar's plan goes awry when his father meets an old acquaintance, Dr. Ramalingeswara Rao (Paresh Rawal) and the two older men decide to marry Shankar to Ramalingeswara Rao's daughter, Dr. Sunitha "Chitti" (Sonali Bendre). At this point the truth about Shankar is revealed. Ramalingeswara Rao insults Shankar's parents and calls them "fools" for being ignorant of Shankar's real life. Shankar's father and mother, aghast and later heartbroken, leave for their village. Shankar, in grief and despair, decides that the only way to redeem himself and to gain revenge for the humiliation suffered by his father at the hands of the spiteful Ramalingeswara Rao is to become a doctor. He decides to go to a medical college to obtain an M.B.B.S. degree, the graduate medical degree in South Asia.
With the help of his right-hand man A.T.M. (Srikanth) and others, Shankar "gains admission" to the Osmania College of Medical Sciences, where he again encounters Dr. Ramalingeswara Rao, who is the dean. His success there becomes dependent upon the (coerced) help of faculty member Dr. Mohammad Rafi (Surya). While Shankar Dada's skills as a medical doctor are minimal, he transforms those around him with the "Jantar Mantar" (Heartful Hug) — a method of comfort taught to Shankar by his mother — and the compassion he shows towards those in need. Despite the school's emphasis on mechanical, Cartesian, impersonal, often bureaucratic relationships between doctors and patients, Shankar constantly seeks to impose a more empathetic, almost holistic, regimen. To this end, he defies all convention by treating a brain-dead child called "Sriram" (Vaishnav Tej) as if the kid were able to perceive and understand normally; interacts on familiar but autocratic terms with patients; humiliates school bullies; effusively thanks a hitherto-underappreciated janitor; and encourages the patients themselves to make changes in their lives, so that they do not need drugs or surgery.
Dr. Ramalingeswara Rao, who perceives all this as symptoms of chaos, is unable to prevent it from expanding and gaining ground at his college. He becomes increasingly irrational, almost to the point of insanity. Repeatedly, this near-dementia is shown when he receives unwelcome tidings and he begins laughing in a way that implies that he has gone mad. This behavior is explained early on as an attempt to practice laughter therapy, an attempt that seems to have backfired — Ramalingeswara Rao's laughing serves more to convey his anger than diffuse it. Meanwhile, his daughter becomes increasingly fond of Shankar, who in his turn becomes unreservedly infatuated with her. Some comedy appears here, because Shankar is unaware that Dr. Sunitha and his childhood friend "Chitti" are one and the same; an ignorance that Sunitha hilariously exploits. Ramalingeswara Rao tries several times to expel Shankar but is often thwarted by Shankar's wit or the affection with which the others at the college regard Shankar, having gained superior self-esteem by his methods.
Eventually, Shankar is shamed into leaving the college: His guilt for not being able to help a dying friend gets the better of him. In the moments immediately following Shankar's departure, Sriram miraculously awakens from his vegetative state; at this point Sunitha gives a heartfelt speech wherein she criticizes her father for having banished Shankar, saying that to do so is to banish hope, compassion, love, and happiness, etc. from the college. Ramalingeswara Rao eventually realizes his folly. Shankar later marries Dr. Sunitha, learning for the first time that she is "Chitti". Finally his parents Reconcile and now, Shankar Prasad is Shankar Dada M.B.B.S..
