David Lynch's films have a reputation for their subjective nature and their puzzling narratives. One of Lynch's most famous movies, Mulholland Dr., is a great example. This was the first film of his I ever saw, and I went in expecting a straight forward film noir. Boy, was I mistaken, yet within a week or so I felt hungry for more, and picked up a copy of Blue Velvet, and from there every other Lynch movie I could obtain (I now own DVD copies of all of his feature films outside of Eraserhead).
Mulholland Dr. can be described as a surreal deconstruction of Hollywood. It does have a bit of a weird history, supposedly originating as a concept for a spin-off to Twin Peaks, a vision which was never realized due to the show's abrupt cancellation. Later on, Lynch tried to rework it into an independent series, and when he couldn't get the pilot picked up Lynch reworked it further into a standalone movie. The story plays out in a manner vaguely reminiscent of a classical film noir, but opts for a much more ambiguous and subjective tone, with a very enigmatic resolution.
Many have tried to explain the mystery behind this strange film's events. The most common explanation I have heard is that most of the story is a dream experienced by one of the main characters and the final act is her waking up to the reality they have tried to escape (similar to how I explained Lost Highway). I have a slightly different theory of my own. It's far from perfect, and may even be a bit radical, but I think it is an interesting idea to explore.
So my theory would suggest the main narrative starts with the events we see in the resolution. Diane Selwyn is in a relationship with fellow actress Camilla Rhodes, but there are implications that the latter may be in a relationship with the director. Later on, Diane has a "surprise" meeting with Camilla in the middle of the woods and they go to a party through an isolated path. The two of them are alone, and Camilla acts very affectionately toward Diane, the two of them holding hands as they walk. Diane is extremely happy, if a little nervous.
However, when they arrive, things don't turn out so great. Diane tries to be polite, but from the moment they confront Adam she seems left out. As they go inside, Diane is quickly separated from Camilla, who seems more interested in spending time around Adam. Diane tries to be polite about it but then she sees Camilla kissing another woman, and as if this wasn't painful enough for her she then hears Adam announce his engagement to Camilla.
As a result, Diane is understandably hurt. The betrayal of her lover has left her upset and not thinking straight, and in a fit of anger she decides to hire a hitman named Joe to kill her. Joe himself even warns Diane of what she is about to do, pointing out that as soon as she hands over the money "it's a done deal". Diane is certain this is what she wants, but it is clear she is not in her right mind. Shortly after, she starts to have second thoughts and is haunted by the inescapable guilt of her actions. The only thing she can do is reinvent herself, effectively killing herself and becoming an entirely new person. Whether she simply creates a new identity or escapes into delusion as I have speculated happens to Fred Madison in Lost Highway, I can't say for sure, but the person that was once Diane is gone.
This brings us to the opening scene of the film, wherein the attempted hit is carried out. By chance, a group of drunk drivers crash into Camilla's car, killing her would-be assassins. Camilla herself survives, but at the cost of her memory. Outside of an understanding of English and vague recollections of something happening on Mulholland Dr., she has no memory of her past self. Meanwhile Diane, now under the name of Betty, had fled from Los Angeles but has since decided to return, acting under the guise of an upcoming actress.
Camilla, in her disoriented and confused state, finds herself wandering into an apartment complex where Betty just happens to be staying. She sneaks into Betty's apartment and adopts the name of Rita. When the two women meet again, Betty recognizes Camilla, or at the very least, sees something familiar about her. In essence, Betty, perhaps still haunted by her guilt (despite suppressing it under a cheerful attitude), sees an opportunity to make amends.
The two women become exceptionally close, just as they were before everything went wrong, and they even begin to rekindle their old romance. However, Rita still has the problem of not knowing who she is. Diane, wanting to redeem herself, tries to slowly ease Rita into understanding the truth of Camilla piece by piece (if only on a subconscious level). Finally, after confessing their love, the two women decide to go somewhere, and end up at the mysterious Club Silencio, where a strange man demonstrates how recorded audio can be used to create illusions of things happening.
This finally inspires Rita to confront the truth, having been prepared for it by Betty. Rita opens the mysterious blue box, and finally learns who she really was. She learns about how much she hurt Betty and what the latter had done to her.
In the final moments of the movie, we see footage of both women together against the backdrop of Los Angeles, reunited at last. With both having confronted the past and realizing what they had done to each other, Betty and Rita--or if you rather Diane and Camilla, have forgiven each other and subsequently have another chance at their relationship.
This is far from a perfect interpretation of the movie. In fact it may well be full of problems I haven't considered. For the purposes of this theory I have focused exclusively on Betty and Rita, and it may be harder to tie in other parts of the movie. Still, I think it is an interesting out-of-the-box approach to look at Mulholland Dr. at least on some level as a story of redemption.