The movie opens to a prologue, where King Parasbaram (Radha Ravi), ruler of a small rival kingdom and the nine ministers of the great Empire of Vikata Nagaram are on their way to a Chinese consulate's mansion. They are warmly welcomed by General Wang (Wilson Ng) and courtesan Hong (Vivienne Tseng) once they reach there. The Chinese consulate, headed by Chao Gong Gong (Nickson Cheng), wishes to engage in trade with the people of the Kingdom of Vikata Nagaram and reap the benefits. Thus, the ministers strike a deal with Parasbaram and the ministers to help them, promising them a huge share of the benefits. The Foreign Affairs Minister of Vikata Nagaram, Nandivarma Rayar (Joe Malloori) objects to this, saying that he doesn't want to betray the King and his people for money. Chao Gong Gong realising that he is of no use to the plan, has courtesan Hong kill him with a poisoned needle from her hair.
The film then introduces Tenaliraman (Vadivelu as the witty common man) who captures a gang of thieves (led by "Besant Nagar" Ravi) and teaches them a lesson. He then takes off for Vikata Nagaram where he meets the feisty Princess Maadhulai (Meenakshi Dixit), daughter of the King of Vikata Nagaram, and defeats her in an arm wrestling competition.
The film's plot then shifts to the King OR Maamannan (Vadivelu again, as the King of Vikata Nagaram), who is ruling over his kingdom along with his nine ministers, whom he claims to be the Navarathnams (nine jewels) of his court. The most interesting aspect is that the King has a rather large family comprising 36 wives and 52 children and is confined mostly to his palace. He believes his people are happy based on the sayings and reports of his ministers. In reality, the people are being robbed and cheated by the corrupt ministers and are living in poverty. During his administration, he realizes the absence of Nandivarma Rayar and asks about it to his ministers, who reply that he had died. The King then declares that a new minister be appointed in Nandivarma Rayar's stead. The guards then announce the news in public. Tenaliraman overhears the news and goes to the palace as a candidate for Nandivarma Rayar's post.
After a display of his all-round talents (singing, dancing, wit and humour), Tenaliraman impresses the King and soon becomes the Minister for Foreign Affairs, Trade and an integral part of the King's court, even closer to the King than the presiding ones. In the meantime, love blossoms between Tenaliraman and Princess Maadhulai. Tenaliraman, in reality, is a rebel who is sent by his comrades to kill the King, whom he believes at first, is responsible for the poverty of the people. Later, while having dinner with the King and the ministers, he discovers that it is the ministers who are at fault and not the King. He tries to warn his comrades of this, but his pigeon who carried the warning message, is captured by one of the ministers (Manobala). He informs the other ministers that Tenaliraman is a rebel and they twist Tenaliraman's message to the rebels, saying that the King will be killed that night. Tenaliraman's comrades believe the twisted message sent to them and raid the palace, only to have them and Tenaliraman get captured by the King. On learning of the conspiracy, the King banishes Tenaliraman from his kingdom.
After a few months, many changes have taken place in Vikata Nagaram. The Chinese have entered the fray and are trading with the Kingdom. Unbeknownst to the King, they are reaping the rewards for themselves, leaving the people even poorer. Parasbaram and the ministers get their share and are enjoying themselves. The King is now very sad thinking of Tenaliraman and misses him. Princess Maadhulai then tells him that Tenaliraman could not have done such a thing and comforts her father. He learns from Tenaliraman's comrade, Kaaliappa (Bose Venkat) that the rebels were wrongly informed and that Tenaliraman was not at fault. The King goes and successfully brings back Tenaliraman to his Kingdom.
Tenaliraman then informs the King in private, that all the rules and regulations and schemes organised by the King on the trade with the Chinese are being carried out in such a way that it only benefits the Chinese and the ministers and not the people, who live in utter poverty, and since the King confines himself mostly to his palace and believes the words of his ministers and that he has lived a rich and prosperous life all along, he cannot mingle and live with the people of his Kingdom even for one day. The King then bets Tenaliraman that he can live with his people incognito for 10 days, and at the same time, find concrete evidence that the people are being robbed and cheated by the Chinese and the ministers. Leaving the care of his Kingdom to Tenaliraman and lying to his wives that he will be going to a nearby Kingdom for administrative purposes and for attending a feast, the King begins his mission.
During his mission, the King learns about the plight of his people from various persons. Soon, he comically finds himself in a hunger strike that is organised against him. When Tenaliraman meets the King in private and converses with him, one of the citizens (Devadarshini) overhears the conversation and discovers that it is the King himself who is among them incognito and reveals it to the citizens of Vikata Nagaram.
In the meantime, Tenaliraman is ruling in the King's state with an Iron grip and because of this, Chao Gong Gong and Parasbaram fear that they might get caught in the process. Parasbaram learns from his spies that the King is in Vikata Nagaram and not elsewhere. He reveals it to Chao Gong Gong and they issue orders to find the King and kill him.
The King, with his citizens, have started a riot in Vikata Nagaram, but unfortunately, the King is captured by the Chinese. Parasbaram, who wanted the throne of Vikata Nagaram for himself, purposefully does not divulge to the Chinese that the King was among those captured until the corrupt ministers came to the consulate to say that the King is in Vikata Nagaram. The King revealed himself and everyone are dumb founded. Chao Gong Gong orders courtesan Hong to kill Parasbarm, because he purposefully failed to realise earlier that the person they caught was the King. The King is then imprisoned in a carriage and taken to a secluded place to be executed. But the leader of a Cannibal tribe stops them midway and orders the King to be handed over to them. Surrounded by Cannibals, Chao Gong Gong reluctantly releases the King. The King, initially frightened, asks the Cannibal who he is. The Cannibal is revealed to be none other than Tenaliraman. Chao Gong Gong uses his telescope and spots something fishy and the ministers and the Chinese traders find out, after General Wang fired at the "men" on the hilltop, that the "men" were just haystacks and that they have been duped. They then to go after the pair, but Tenaliraman, in his style, chases them out of Vikata Nagaram forever using the same bag of tricks that he used on the gang of thieves earlier.
The film then ends with new people replacing the posts of the corrupt ministers. Tenaliraman becomes the new prime minister. Coincidentally, most of these new people were involved in comical encounters with the King during his 10-day plan. In the end, the King himself takes additional charge as one of the ministers, on Tenaliraman's suggestion, as the child welfare minister and Princess Maadhulai is selected as the Sports minister.
The film signs off with the tagline "Tenaliraman Amaitha Indha Makkal Aatchi Thodarattum.....Dum!" (Let the people's government established by Tenaliraman continue).