Viewers will be arguing over steaming cups of joe whether ``Mulholland Drive'' is a hellish, loopily Sisyphean view of life, a dead-end journey through David Lynch's personal heart of darkness or just a head-scratcher. Since it's more or less all of these things, the argument might never be settled. But ``Mulholland Drive'' won't leave you bored or disappointed.

Set in the febrile hills and valleys of Los Angeles and pregnant with the ominous menace of the lawns in Lynch's ``Blue Velvet'' (1986), the film takes place in a Hollywood of the mind or at least of Lynch's mind. That is to say it is an unnerving, haunted-house ride, even if we can't tell if the destination is the Twilight Zone, Sunset Boulevard or Nowheresville.

Unlike previous efforts by writer-director Lynch (``Wild at Heart,'' ``Lost Highway'') featuring couples as protagonists, ``Mulholland Drive'' has two heroines who become a pair. An initially unidentified, voluptuous, dark-haired beauty (Laura Elena Harring) is about to be killed in the back seat of a limousine when a freak car accident on Mulholland Drive kills her attackers and several others, leaving her stricken with that most cinematic of ailments, amnesia.

When the innocent, fair-haired aspiring actress Betty Elms (Naomi Watts in a breakout performance) moves into her aunt's vintage Sunset Boulevard apartment, complete with Hollyweird neighbors, she finds ``Rita'' (who adopts the name from a poster of ``Gilda'') already in residence. But Betty soon learns the mysterious femme fatale has lost her identity, and the two of them embark on a quest to find it.

Identity is a popular Lynch theme, and apparently so fluid a state that it is possible to have the same character played by different actors, as Lynch did in ``Lost Highway.'' Of course, the granddaddy of screen surrealists Luis Bunuel went the same route in ``That Obscure Object of Desire'' (1977).

Betty and Rita - who suggest a B-movie version of the heroines in Ingmar Bergman's ``Persona'' (1966) - search for the truth, encountering a rotting corpse and a strange stage show featuring a haunting, Spanish-language rendition of Roy Orbison's classic ``Crying'' performed by Rebekeh Del Rio.

Meanwhile, a Los Angeles detective by the name of McKnight (Robert Forster) is trying to make sense of the horrific traffic accident scene, and Vincenzo Castigliane (Dan Hedaya) is attempting to persuade hotshot Hollywood director Adam (Justin Theroux) to cast a mobster's girlfriend as his leading lady.

In a startlingly erotic scene, Betty and Rita become lovers, which triggers a transformation: Betty finds herself playing a supporting role in a film starring Rita and vying with director Adam for Rita's charms. We appear to have entered the realm of dreams within dreams, as well as films within films.

Admittedly, Lynch is spinning his wheels half the time, stuck in past obsessions. The musical midget from ``Twin Peaks'' reappears in ``Mulholland Drive'' as a Dr. Mabuse-like figure in a wheelchair. Another character meets a friend at Winkie's (a Los Angeles diner) and relives a dream he's had about the place, including a terrifying confrontation with a diabolical creature. An elderly couple is unmasked as evil ``Eraserhead''-style imps. A hit man arrives in the form of a Roy Rogers look-alike.

Lynch's self-reflexive film industry setting is shopworn, but former musical star Ann Miller combines both Norma Desmond and Ruth Gordon's witchy character from ``Rosemary's Baby'' as Betty's apartment manager. Like Lynch's earlier work, including his 1978 cult classic ``Eraserhead,'' ``Mulholland Drive'' unfolds in the free-associative, back-and-forth style of a dream. When Lynch uses a dissolve, you never know what will show up next, and the tension between desire and dread that this creates is exquisite. Lynch is Rod Serling without the plots.

His latest film is a Rorschach test inviting us to step across a threshold to another world. The film, which was originally conceived as an ABC television pilot and financed by French backers, is sublime in the literal sense.

Lynch's mastery of trance-inducing atmospherics - compounded by Peter Deming's buoyant camerawork and effulgent visuals, the childhood-evoking, retro design by Lynch regular Jack Fisk and mysterioso music by Angelo Badalamenti - establishes him as the true heir to Bunuel. Even ``The Straight Story'' (1999), Lynch's ``straightest'' film, transforms its Midwest setting into an eerily undulant, wheat-carpeted dreamscape.

Lynch's work is so personal it could be psychoanalyzed in his stead. Dreams are often just mystifying jumbles, and Lynch's musings are certainly often that, but they are also grounded by our most elemental concerns: identity, wish fulfillment, sin, sex and death. In the end, ``Mulholland Drive'' is not so much a literal address as a Lynchian road map of memory and desire. Click your heels twice if you want to go home again.

(``Mulholland Drive'' contains nudity, sexual situations and violence.)