Tansen is known to be the greatest classical vocalist ever to have existed in India, and was one of the nine jewels (Navaratnas) of Emperor Akbar's court. Nobody could sing in the city unless he or she could sing better than Tansen. If this was not the case, he or she was executed. Baiju Bawra is the story of an unknown singer, Baiju, who is on a mission to defeat Tansen in a musical duel to avenge the death of his father.
When Baiju is still a child, Tansen's sentry tries to stop Baiju's father from singing, and in the ensuing scuffle, his father dies. Before dying, he extracts a promise from his son to take revenge against Tansen. Baiju gets shelter from a village priest and while growing up, falls in love with Gauri, the daughter of a boatman. He continues his musical education on his own, but gets so enamoured by Gauri's love that he forgets the promise made to his father.
Later, a group of dacoits raid Baiju's village. With his song, Baiju persuades them against looting the village, but the female leader of the dacoits falls in love with him and asks him to follow them to their fort as a condition for their sparing the village. Baiju leaves with her, leaving the wailing Gauri behind. In the fort, the dacoit leader, who is actually a princess living in exile, tells Baiju how her father's fiefdom had been usurped and she was seeking revenge because the village too previously belonged to her father. The word "revenge" brings all of Baiju's memories back; he leaves the fort greatly agitated, and the princess does not try to stop him.
Baiju sneaks into the Mughal palace, where Tansen is singing. He is dumbstruck by the way Tansen sings, and the sword that was supposed to cut the maestro's throat fell on the tanpura, saddening Tansen. He said he could only be killed by music, and the pain that accompanies it. "Dip your notes in melancholy and I'll die on my own," he said. Baiju accordingly leaves the palace to learn "real" music.
Baiju remembers that when his father was killed, he was taking Baiju to Swami Haridas. He goes to see the Swami himself and asks for his guidance, informing him of his plan to take revenge against Tansen. Haridas tells Baiju that one must be in love to be a true musician, and thus Baiju must rid himself of all the hatred in his heart, but still gives him a veena and accepts him as his disciple. Baiju again starts his musical training, spending all his time in a Shiva temple, but his vengeful feelings never leave him. Nonetheless, he still reveres his guru, Haridas. After learning that his teacher had fallen seriously ill and was unable to walk, Baiju sings a song that so thrills Haridas that the master gets out of his bed and starts to walk.
Gauri, meanwhile, is so distraught over Baiju's departure that she is about to swallow poison. At that point, the princess who had taken Baiju from the village comes to her and tells her that she knows of Baiju's whereabouts. Gauri meets Baiju and tries to convince him to return to the village so they can be married; Baiju, however, refuses, as he feels he must take revenge against Tansen. At this point, Haridas arrives, and Baiju goes to receive him, once again leaving a crying Gauri behind. Haridas tells Baiju that to be a true singer, he has to feel real pain. Hearing this, Gauri decides to make a venomous snake bite her, thinking that her death would bring enough grief to Baiju that he would defeat Tansen. Baiju sees Gauri's lifeless body and goes mad, with the princess' attempts to get through to him being futile. Baiju instead goes to the Shiva temple and sings a heart-wrenching song condemning the God who had consigned him to his fate; even the idol of Lord Shiva sheds tears at Baiju's grief.
In his delirious state, Baiju reaches Tansen's city, singing the whole way. The residents fear for his life and call him bawra (insane), hence the title of the movie. Baiju is caught and imprisoned, but the princess frees him. However, both of them are caught by Mughal soldiers when escaping, leaving a musical duel with Tansen as the only way to save his life.
Emperor Akbar himself witnesses the competition. For a long time, both the singers prove to be equally good. Then Akbar suggests that whoever could melt a marble slab with his singing would win the duel. Baiju manages to do so and wins the competition, saving his own life and finally avenging his father's death. Tansen accepts his defeat graciously, and is in fact happy that there is someone better than him. Baiju persuades Akbar to spare Tansen's life, to return the princess' land to her, and to allow music in the streets.
After winning the musical duel, Baiju departs from the court. Emperor Akbar is unhappy to see him go and asks Tansen to sing to produce a storm and floods to make him stay. Tansen sings raga Megh and the river Yamuna floods. (This scene was cut from the final film.)
Meanwhile, Gauri is alive but her father is deeply upset. The entire village makes fun of Gauri's and Baiju's love affair. Her father warns her that either Baiju should be found, or Gauri should marry a village moneylender, and in case she refuses, he would commit suicide. Gauri, unwilling to divulge Baiju's whereabouts, agrees to marry the money-lender.
Discovering that she is still alive, Baiju goes to meet Gauri. On the other side of a swollen Yamuna River, Baiju is stuck. The boatmen refuse to take him to the other side. Despite not knowing how to swim, Baiju pushes the boat into the raging waters and starts rowing it. He starts singing and Gauri hears it. She starts running towards the bank. When she sees Baiju struggling with the boat, she jumps into the water to rescue Baiju. The boat topples over and after a lot of struggle Gauri manages to reach him. He urges her to go back and leave him, but Gauri replies that they had promised to be together in life and in death, and she would be content in dying with him. They both drown as the film comes to an end.