While pursuing her studies in architecture, Rai began modelling on the side. In the 1994 Miss India contest, she won the second place behindSushmita Sen, and was crowned Miss India World. She went on to win the Miss World title the same year, where she also won the Miss Photogenic award. She abandoned her academic education after winning the pageant and spent one year reigning as Miss World in London. Rai then started working as a professional model and then moved on to her current profession as an actress.

Rai made her acting debut in Mani Ratnam's Tamil biopic film, Iruvar (1997) with Mohanlal, The controversial film was a critical success and won many awards including Best Film award at the Belgrade International Film Festival, two National Film Awards, and two Filmfare Awards South. Rai appeared in dual roles, opposite veteran actor Mohanlal, with one of her roles being a cinematic depiction of political leader and ex-actress J. Jayalalithaa. Rai made her Bollywood debut in the film, Aur Pyaar Ho Gaya opposite Bobby Deol, which also released that year; the film did not do well at the box office, and was also panned by critics. However, her third project, S. Shankar's Tamil film, Jeans(1998) was a commercial success. The film was also noted for the song "Poovukkul", written by Vairamuthu, in the lyrics of which, she is compared to the seven wonders of the world and described as the eighth.

In 1999 Rai starred in Sanjay Leela Bhansali's Hum Dil De Chuke Sanam opposite Salman Khan and Ajay Devgan. The film was centered on Rai's character, Nandini, who is forced to marry Devgan's character despite being in love with another man (Khan). As her husband tries to get her to her previous love, she eventually falls for him. Rai's portrayal won her critical acclaim, with a review on Rediff.com writing, "Aishwarya looks beautiful as usual ... This film will most likely draw her accolades from all over, maybe even get her recognised as an actress the way Manisha Koirala did in Khamoshi. In many scenes, there is no trace of makeup and she looks very fresh". The film became her first box office success in Bollywood and earned her first Filmfare Best Actress Award for her.