Murli Prasad Sharma (Sanjay Dutt), nicknamed “Munna Bhai” (literally “Brother Munna”) is a bhai or gunda: a crime don in the Mumbai underworld. Given that his father had wished him to be a medical doctor, he creates the faux Sri Hari Prasad Sharma Charitable Hospital (named after his father) and pretends to live in accordance with this wish whenever his father (Sunil Dutt) and mother (Rohini Hattangadi) visit him in Mumbai.
One year, however, Munna’s plan goes awry when Hari meets an old acquaintance, Dr. Asthana (Boman Irani) and the two older men decide to betroth Munna to Asthana’s daughter, Dr. Suman “Chinki” (Gracy Singh). At this point the truth about Munna is revealed. Asthana insults Munna’s parents and calls them “fools” for being ignorant of Munna’s real life. Munna’s father and mother, aghast and later heartbroken, leave for their village.
Munna, in grief and despair, decides that the only way to redeem himself and gain revenge for the humiliation suffered by his father at the hands of the spiteful Ashthana is to become a doctor. He decides to go to a medical college to obtain an MBBS degree.
With the help of his right-hand man Circuit (Arshad Warsi) and others, Munna “gains admission” to a medical college, where he again encounters Dr. Asthana, who is the dean. His success there becomes dependent upon the (coerced) help of faculty member Dr. Rustam Pavri (Kurush Deboo).
While Munna Bhai’s skills as a medical doctor are minimal, he transforms those around him with the “Jadoo Ki Jhappi” (“magical hug”) – a method of comfort taught to Munna 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, Munna constantly seeks to impose a more empathetic, almost holistic, regimen. To this end, he defies all convention by treating a brain-dead man called “Anand bhai”(Yatin Karyekar) as if the man 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.