'Diwana' is an intense romance that follows Kajal (Divya Bharti), who falls in love with, and marries a famous singer named Ravi (Rishi Kapoor). The newlyweds lead a blissful married life for a while, until tragedy strikes in the form of Ravi's greedy uncle Pratap (Amrish Puri) and cousin Narender (Mohnish Behl), who are determined to lay their hands on Ravi's wealth. Narender first tries to rape Kajal but fails when he is caught. Pratap then hire hoodlums to murder Ravi, and he is thrown off a cliff. Along with Ravi, Pratap's son, Narender, also dies.
Kajal's mother-in-law (Sushma Seth) takes Kajal away from the depression of losing her husband, to start a new life. In a new city, the widowed and depressed Kajal tries to get over her pain. One day a young man, Raja (Shah Rukh Khan), accidentally hits Kajal's mother-in-law, meets Kajal and falls in love with her. When he tells Kajal he loves her, Kajal tells him that she is a widow. Raja's father tells a bunch of thugs to get rid of Kajal, and Raja severs ties with his father after finding out. He begs Kajal's mother-in-law to encourage Kajal to marry him. As her mother-in-law feels that Kajal should marry again, she persuades her.
Raja and Kajal get married, but Raja tells her that he will not touch her, until she accepts him. He looks for a job and his friends open a garage with him. One day, Raja goes to check out a jeep but has an accident when the brakes fail. Kajal becomes shocked when she hears this, and runs to see him. After returning from the hospital, Kajal accepts him and falls in love with him, and the two are finally happy together.
Things are well until one day, Raja rescues a man from hoodlums. He gets him treated and befriends the man, whose name is Ravi.
When Raja brings Ravi to Kajal, she is shocked to see that her husband's new friend, is none other than her first husband, who apparently survived his uncle's attempt to murder him. When the truth is revealed however, Kajal stays with Raja, and Ravi's mother leaves with Ravi. Ravi's uncle figures out that Ravi is alive and has Raja and Kajal kidnapped, saying that he will let them go if Ravi signs the property papers.
Raja escapes and he and Ravi beat Pratap, after which they find Kajal, tied up with a bomb strapped around her. Ravi manages to switch off the bomb and take it off her, but Pratap appears and says he will kill Raja, and make Kajal a widow again. Ravi protects Raja and he and Pratap fall. Ravi sets the bomb off, causing a large explosion, killing Pratap and himself once and for all. Kajal and Raja stay together and live happily ever after, honoring Ravi's memory.