Pagal Nilavu is in essence the story of Selvam(Murali) an aimless youth in Muttam(Kanyakumari Dist) who out of a sense of deep gratitude ends up joining the gang of Devaraj aka Periyavar(Sathyaraj) and the complications which arise when he falls in love with Jyothi(Revathi), the sister of Robert Manohar(Sarat Babu) an honest and committed police inspector who is newly posted to the town.