The club's owner, Dennis Dupree (Baldwin), and his right-hand man, Lonny Barnett (Brand), are trying to find a way to deal with unpaid taxes that threaten the club, wish their love of rock 'n' roll could keep it alive. Drew and Sherrie go to a Tower Records store to confess their dreams of becoming famous. Dennis and Lonny finally decide to book Stacee Jaxx (Cruise), a famous rock star preparing for his final gig with his band Arsenal, to perform at the Bourbon in hopes of raising enough money to clear up their debt. Upon hearing of Stacee's upcoming concert, Patricia Whitmore (Zeta-Jones), the religious conservative wife of Mayor Mike Whitmore (Cranston), organizes her church to protest in front of the Bourbon Room, planning to shut them down in an attempt to rid L.A. of its "sex, drugs, and rock 'n' roll" image.
Meanwhile, Drew's and Sherrie's relationship progresses and they slowly begin to fall in love, with Drew admitting he has started writing a song for Sherrie. On the night of the show, Dennis learns that Arsenal's opening act has cancelled its appearance, and Sherrie convinces him to use Drew and his band, "Wolfgang Von Colt". Drew then confesses his feelings for Sherrie while Stacee's manager, Paul Gill (Giamatti), schedules an interview between Stacee and Constance Sack (Åkerman), a reporter for Rolling Stone magazine, before the concert. She mentions the rumors that Stacee is difficult to work with and that he was actually kicked out of Arsenal, but Jaxx claims that his life is much more complicated than it appears to be. He seduces her, and they are close to having sex when one of his arrogant comments convinces her that it would be a mistake and causes her to leave.
While Drew is waiting to go on stage, he mistakes Sherrie's apologies to Stacee for having broken his Scotch bottle as an admission that they had sex causing him to perform in a rage but one that the audience loves. He breaks up with her and leaves with Gill after Gill offers to make Drew famous. Sherri quits and struggles to find a job until Justice Charlier (Blige), the owner of a local strip club called "The Venus Club", takes Sherrie under her wing, allowing her to work in the club as a waitress. Eventually, Sherrie is forced to become a stripper and Justice teaches her the essentials of being an exotic dancer while Drew learns that he must change his rock star image into that of a boy band. Stacee learns from Constance's article that Gill had stolen the proceeds from the show at the Bourbon Room, and terminates his employment with him. A depressed Drew visits the Hollywood sign, where he finds Sherrie, who reveals both that she didn't have sex with Stacee and that she is going back to Oklahoma. Sherrie and Drew lament the situation while Stacee realizes he has feelings for Constance.
That night, before Stacee's first solo show at the Bourbon, Patricia and her supporters square off against Stacee's enthusiasts, led by Lonny. When Stacee arrives, he seems to remember Patricia and greets her as "Patty." Lonny also recognizes her from photo art inside one of Arsenal's old records, and exposes her as a former groupie of Arsenal, and a hypocrite, in front of everyone. Stacee enters the club and finds Constance, and professes his love for her. He also has his security return the stolen money to Dennis, who uses it to pay the taxes and save the club.
Drew's boy band, the "Z Guyeezz," begins to open the show but the rocker crowd boos their pop/hip-hop, and Drew, spotting Sherrie in the audience, leaves the stage. The two reconcile and Drew also dismisses Gill, proclaiming that rock 'n' roll will never die. Sherrie then reunites Wolfgang Von Colt for the opening act, where Drew performs the song he wrote for her. Stacee hears the song and seems to be moved by it. Eight months later, Stacee, who has rejoined Arsenal, performs the song with Drew and Sherrie, who is now part of Wolfgang Von Colt, in an arena, in front of a crowd that includes Dennis, Lonny, Justice, a pregnant Constance, and Patricia, whose humiliation at exposure as a hypocrite has sent her back to her rock 'n' roll persona.