Manichitrathazhu movie revolves around a young couple Ganga (Shobhana) and Nakulan (Suresh Gopi) who are arriving at the ancestral "Tharavadu" mansion of the latter. Ignoring the protests of their superstitious uncle Thampi (Nedumudi Venu), they move in to the mansion, when unusual and supernatural events begin to happen. Suspicion falls on Sreedevi (Vinaya Prasad) Nakulan's cousin, who is known to be suffering from depression after her marriage.
Dr. Sunny Joseph (Mohanlal) who is a frolicsome psychiatrist and Nakulan's close friend is called in to investigate. Soon it becomes evident that Ganga, affected by Multiple Personality Disorder (MPD), is behind the mystery, haunted by a troubled past. The mansion that Nakulan and Ganga were living in was occupied in ancient times by a cruel Thampi chieftain, who had imprisoned a famous Bharatnatyam dancer, Nagavalli. There she pines away for her lover Ramanathan. Ganga who grew up listening to folklore and ghost stories from her grandmother identifies with the character Nagavalli. This empathy gradually leads to psychosis. When Ganga turns into Nagavalli the characters of the household turn into the characters of a bygone era in her eyes.
Sunny correctly identifies the source of the violent happenings at the mansion, and convinces Nagavalli to renounce Ganga's body once she is allowed to execute the cruel chieftain. He dresses up Nakulan as the ancient king, and at the crucial moment, replaces Nakulan with a dummy. Nagavalli in Ganga is fooled into believing that she has taken her revenge, and Ganga recovers from her affliction.