| Director | Robert Greenwald |
|---|---|
| Budget | $20 million |
| Box office | $23 million |
Sonny Malone, a struggling self-employed illustrator residing in Los Angeles, has failed to find passion in his art. He tears up one of his sketches and tosses the pieces out his studio window; the wind transports them toward a wall mural of nine dancing sisters that suddenly comes alive when the scraps touch the mural. The sisters fly across Earth, but one returns to roller skate through town, then deliberately slows upon encountering Sonny. She momentarily pauses to kiss him before skating away, confounding him.
Meekly returning to his old job of painting album-cover reproductions at AirFlo Records, Sonny is tasked by his tyrannical boss Simpson with painting a reproduction for a group called the 9 Sisters. The cover shows the mysterious woman whom Sonny had met in front of an abandoned Art Deco-style auditorium. The photographer tells Sonny that the woman was not supposed to be on the cover but suddenly appeared in a few of his shots. Returning to where he first encountered her, he instead encounters Danny McGuire, a former big-band clarinet player and later orchestra leader turned construction mogul. During Sonny and Danny's conversation, the woman appears in person, causing Sonny to track her across town to the same auditorium, where she introduces herself as Kira but refuses to tell him anything more about herself.
Sonny and Danny befriend each other, with Danny detailing his romantic involvement in the 1940s with a singer who resembled Kira; her departure resulted in his own loss of creative passion. Kira encourages the duo to open a nightclub at the auditorium called Xanadu, and the two begin working together as partners. Sonny and Kira also gradually fall in love, culminating in a magically animated sequence. On the night before the club's opening, Kira confesses to Sonny that she is actually Terpsichore, one of the Nine Muses of Olympus. She was sent to inspire the creation of Xanadu, but she cannot stay despite their mutual feelings, as she is forbidden from falling in love with mortals. Sonny becomes upset at the revelation, and Kira departs Earth having fulfilled her duty.
Danny tells Sonny to keep pursuing Kira, encouraging him not to abandon his dreams as Danny had done after his own muse left him. Sonny manages to enter Kira's home by roller skating into the Muses' mural. Inside the realm of the gods on Mount Helicon, Sonny pleads with Kira's father Zeus to allow Kira to return to Earth, and Kira's sympathetic mother Mnemosyne attempts to influence Zeus. However, Zeus sends Sonny back to Earth. Kira then professes her feelings for Sonny, and Zeus ultimately relents, allowing her to be with Sonny for "maybe just one moment, or forever". Kira and the Muses perform at the grand opening of the Xanadu club before returning to their realm. Sonny is initially saddened by their departure, but after Danny orders a cocktail for him, he sees that the waitress who serves him resembles Kira, and begins a conversation with her.