The film is based on the legend of Nalla Thanka. Nalla Thanka, the only sister of Nallannan, the King of Madhurapuri, is wedded to Somanathan, the king of the neighbouring kingdom Ratnapuri. Alankari, the wicked wife of Nallannan becomes envious of the prosperity of Ratnapuri and the happy married life of Nalla Thanka. Years pass and Nalla Thanka gives birth to seven children. Drought strikes Ratnapuri and severe famine follows. Nalla Thanka leaves Ratnapuri with her children to seek the help of her brother, and Nallannan promises to help them.
Alankari tortures Nalla Thanka. Nalla Thanka hides the misdeeds of Alankari from Nallannan as she does not want their family life to be disturbed. Finally, out of shame and grief, Nalla Thanka leaves her brother’s palace. She decides to kill herself and her children. Nalla Thanka prays to Lord Shiva to forgive her for the decision. She throws her children one by one into a well. Lord Shiva descends and saves her life. All the children are brought back to life. Nallannan discovers the misdeeds of Alankari and she is sent into exile. Ratnapuri regains its glory. Nalla Thanka and Somanathan live happily with their children.
Nalla Thanka is considered as the first mega hit in Malayalam cinema. The film introduced the legendary music director V. Dakshinamoorthy, and stalwarts of musical opera like Augustine Joseph and Vaikom Mani to the tinsel world. Nalla Thanka introduced the comic actor S.P. Pillai and actress of Miss Omana (N.J. Mary) to Malayalam cinema. The film marked the debut of several other artistes, including actors Augustine Joseph, Vaikom Mani and Miss Kumari, music director V. Dakshinamoorthy and cinematographer P. K. Madhavan Nair.