The story begins in 1962, when The Dreamettes, a hopeful girl group from Chicago, enter the famous Amateur Night talent competition at the Apollo Theater in Harlem, New York ("I'm Lookin' for Something", "Goin' Downtown", "Takin' the Long Way Home"). The three girls include full-figured lead singer Effie White and her groupmates and best friends, Deena Jones and Lorrell Robinson. For the talent contest, the Dreamettes sing "Move (You're Steppin' on My Heart)", a song written by Effie's brother, C.C., who accompanies them to the talent show. Backstage, the girls and C.C. meet Curtis Taylor, Jr., a shady used-car salesman who becomes the Dreamettes' manager.
Curtis convinces James "Thunder" Early, a popular RandB star, and his manager, Marty, to take the Dreamettes on as backup singers. Although Jimmy Early and the Dreamettes' first performance together is successful ("Fake Your Way to the Top"), Jimmy is desperate for new material. The ambitious Curtis convinces Jimmy and Marty that they should venture beyond traditional RandB/soul audiences and aim for the pop market, so C.C. writes the song "Cadillac Car" for Jimmy and the Dreamettes. Jimmy and the Dreamettes go out on tour ("Cadillac Car (On the Road)"), and record the single once they return home ("Cadillac Car (In the Recording Studio)"). "Cadillac Car" makes its way up the pop charts, but a cover version by white pop singers Dave and the Sweethearts ("Cadillac Car (Reprise)") steals the original recording's thunder.
Angered by "Cadillac Car's" failure, Curtis, C.C., and Jimmy's producer Wayne resort to payola: they bribe DJs across the nation to play Jimmy Early and the Dreamettes' next single, "Steppin' to the Bad Side", and the record becomes a major pop hit. Conflict arises between Marty and Curtis when Curtis moves in on Marty's turf: Jimmy Early. Things become more complicated when lovesick Effie begins dating Curtis, and Jimmy, a married man, begins an affair with Lorrell ("Party, Party").
Marty eventually quits as Jimmy's manager and Curtis takes over, more power-driven than ever and strongly determined to make his black singers household names in white homes. Curtis begins to transform Jimmy Early into a Perry Como-esque pop singer ("I Want You Baby"), and concentrates on establishing the Dreamettes as their own act, renaming them The Dreams and changing their act to give them a more sophisticated and pop-friendly look and sound. The most crucial of these changes is the establishment of the more pop-friendly (and thinner) Deena as lead singer instead of the gospel-voiced (and heavier) Effie. Effie is resentful of being pushed out of the spotlight, although C.C. is able to convince her to go along with Curtis' plan ("Family").
The Dreams make their club debut in the Crystal Room in Cleveland, Ohio, singing their first single, "Dreamgirls". After a triumphant show, the press is eager to meet the newly minted stars ("Press Conference"). Curtis informs Deena that this is "Only the Beginning": "I'm going to make you the most famous woman who's ever lived," Curtis declares, as the slighted Effie quizzes "What about me?" Over the next few years, the Dreams become a mainstream success with hit singles such as "Heavy." As Deena is increasingly feted as a star, Effie becomes temperamental and unpredictable, as she suspects Curtis and Deena of having an affair behind her back. Lorrell attempts to keep peace between her bandmates, but the task proves impossible.
In 1967, the group - now known as "Deena Jones and the Dreams" - is set to make its Las Vegas debut. However, when Jimmy stops by to visit the girls ("Drivin' Down the Strip"), he learns from the others that Effie has been missing shows because of illness (it is later revealed that she was pregnant with Curtis' child). Curtis and Deena are convinced she is trying to sabotage the act. Curtis replaces Effie with a new singer, Michelle Morris, a change Effie learns about before anyone has a chance to tell her. Effie confronts Curtis, C.C., and the group ("It's All Over"), but despite her personal appeal to Curtis ("And I Am Telling You I'm Not Going"), the heartbroken Effie is left behind as Deena Jones and the Dreams forge ahead without her ("Love Love Me Baby").
The story moves five years ahead to 1972. Deena Jones and the Dreams have become the most successful girl group in the country ("Act II Opening" 1). Deena has married Curtis, and C.C. is in love with Michelle. Jimmy - still seeing Lorrell behind his wife's back - has gone years without a hit. Curtis shows little interest in updating or revitalizing Jimmy's act, both because of his preoccupation with Deena and because of Jimmy's habit of sneaking funk numbers into his repertoire of stiff, pop-friendly numbers. Meanwhile, Effie is back in Chicago, a single mother to her daughter Magic, and struggling to get another break. Marty, now her manager, compels her to rebuild her confidence and give up her diva attitude. After she does so, Effie is finally able to make a show business comeback ("I Am Changing").
In contrast to Effie's struggling to return to her musical career, Deena wants to stop singing and become an actress. Deena informs Curtis of such during a Vogue photo shoot ("One More Picture Please"), but Curtis refuses to let her go ("When I First Saw You"). Deena is not the only one chafing under Curtis' control: C.C. is enraged by Curtis constantly rearranging his songs, including an emotional ballad entitled "One Night Only" which Curtis wants instead recorded to reflect the "new sound" he is inventing (disco).
Deena Jones and the Dreams and Jimmy Early perform at a National Democratic fund raiser, on a bill alongside groups such as The Five Tuxedos ("Got to Be Good Times"). While waiting backstage to go on, Jimmy finds himself in another argument with Lorrell as to where their relationship is going and when, or if, Jimmy will tell his wife about their affair ("Ain't No Party"). Lorrell is in tears as Jimmy takes to the stage to perform "I Meant You No Harm", and she turns to Deena for support. As Jimmy pleads to Lorrell through his music, Deena tries to help Lorrell figure through her situation, and Michelle convinces the bitter and frustrated C.C. to go find his sister and reconcile with her ("Quintette").
Mid-way through "I Meant You No Harm", Jimmy falls apart and decides that he "can't sing any more sad songs". Desperate to keep his set going, Jimmy launches into a wild, improvised funk number ("The Rap") and drops his pants during the performance. An embarrassed Curtis fires Jimmy as soon as the set is over, and Lorrell ends her affair with Jimmy as well. The heartbroken Jimmy fades away into obscurity, refusing to "crawl" or "beg" for Curtis' help.
Marty arranges for C.C. to meet and reconcile with Effie at a recording studio ("I Miss You, Old Friend"). C.C. apologizes for his role in handicapping her career, and Effie records C.C.'s "One Night Only" in its original ballad format. "One Night Only" begins climbing the charts, causing an enraged Curtis to not only rush-release Deena and the Dreams' version, but to use massive amounts of payola to push Deena's version up the charts and Effie's version down ("One Night Only (Disco)"). Effie, C.C., and Marty discover Curtis' scheme and confront him backstage at a Dreams concert, threatening legal action ("I'm Somebody", "Chicago/Faith in Myself"). As Curtis makes arrangements with Effie's lawyer to reverse his wrongdoings, Effie and Deena reconcile (and Deena learns that Effie's daughter Magic is Curtis' child). Realizing what kind of a man Curtis is, Deena finally finds the courage to leave him and live her own life.
Effie's "One Night Only" becomes a number-one hit, as the Dreams break up so that Deena can pursue her movie career ("Hard to Say Goodbye, My Love"). For the final number of the Dreams' farewell concert, Effie rejoins the group on stage, and all four Dreams sing their signature song - "Dreamgirls" - one last time.
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