Shehar Aur Sapna is about a young couple, searching in vain for a home of their own in a metropolis, amidst the backdrop of rapidly developing city, and the many who flock to it, in hope for a better life

It was based on Abbas's own story, One Thousand Nights on a Bed of Stones, which describes the struggle in the life of pavement dwellers against the backdrop of rapid industrialization. The theme of the film signified a marked departure from the films which were made in 1950s, the opening decade of independent India. By now the euphoria seen the films like, Naya Daur (1957) and Boot Polish (1954), had been replaced by realism and death of economic idealism. This was also seen in later films like Roti Kapda Aur Makaan (1974) and Mani Kaul's Uski Roti (1969), as industrialization didn't turn out to be a boon for the masses as promised.

Abbas used his own experiences of sleeping on the footpath at one point in his life. To prepare for shooting the city "figuratively", he walked about the city under all weathers, to be able to recreate the settings to match the emotional landscape of the film. Though most of it was shot outdoors in Mumbai slums and roads (on a shoestring budget) for crucial scenes, cylindrical drainpipes were carried to the studios to recreate life of the urban poor “indoors”, surrounded by slums and hutments by the railway lines.