The film is divided into three parts, all of which concern the making of a low-budget movie featuring the same director, crew and substantially the same cast.
Part one: Director Nick Reve (Steve Buscemi) is shooting a low-budget independent film in the middle of New York City. The catering crew are under-funded and apathetic, deciding not to replace a carton of milk that has been on the craft service table for a week. The scene being shot is a difficult one: a young woman, Ellen, reproaches her elderly mother (Rica Martens) for not intervening when the father beat Ellen as a child. However, on the set, just about everything that can go wrong does go wrong: shots are spoiled because of how the mic boom is visible; the camera assistant fails to keep the shot in focus; Cora, the actress playing the mother, forgets her lines; and Nicole, the actress playing Ellen, becomes increasingly unfocused and careless. A dispirited Nick calls for a rehearsal without camera to refresh the actors. However, when Nicole (Catherine Keener) berates herself for acting badly, Cora (Rica Martens) reassures her with a gesture that reminds Nicole of a similar gesture made by her own terminally ill mother. Nicole is so upset by the memory that she turns in an unexpectedly passionate performance; and Cora, startled by Nicole's sudden intensity, is equally good. Watching them, Nick becomes enthusiastic all over again. Unfortunately, it was not captured on film; cinematographer and camera operator Wolf (Dermot Mulroney), who has been diluting the sub-standard coffee with the spoiled milk, was vomiting in the toilet throughout. Nick ruefully calls for another take. This time, a sudden and insistent beeping sound distracts the actors. Nobody can tell where it's coming from; and Nick flies into a rage, berating everyone on the crew and cast for their inadequacies. He then wakes up in his own bed; the beeping sound was his own alarm clock. He has dreamed the entire segment. It is 4.30am; and he is due on set.
Part two: Early the same morning, the film's lead actor Chad Palomino (James LeGros) is getting dressed in Nicole's hotel room. They have spent the night together, and Chad suggests that they might get together again later; Nicole politely declines. Chad and Nicole arrive on the set separately. Nicole's character Ellen and Chad's character Damian have been in love for years but have never admitted it until the scene being shot on this day. Shooting the scene is made practically impossible by Chad's irregular acting. He keeps changing his mind about where to stand and continually moves to places where he is either invisible or badly lit by scenic light. Nicole becomes increasingly frustrated by Chad's egomania; and, when he starts to stroke her head, she briefly loses her cool, then apologizes. An irritated Chad demands a private talk with Nick. He tells Nick that he has slept with Nicole and makes out that it was she, not he, who had wanted to continue the relationship. Desperate to keep Chad happy, Nick agrees that Nicole is not very good. Nicole overhears this conversation on the sound mixer's headphones. Pretending to be contrite, she asks Nick if they can improvise a little; but, when they do so, she announces to everyone that, although she slept with Chad, she is not at all interested in him. Chad loses his temper and quits the movie. Relieved that he will no longer have to please Chad, Nick calls him a "Hostess Twinkie motherfucker" and a fight breaks out. Nick beats Chad senseless and fires him. He apologises to Nicole and confesses that he loves her. They kissâthen Nicole abruptly wakes up, still in her bed, having dreamed the entire segment.
Part three: Later the same day, the crew is setting up for a dream sequence in which Nicole, as Ellen, stands still while a dwarf walks around her holding an apple. Nick claims to have learned a lesson from his own dream: That sometimes, "you just got to roll with things." Nicole admits that she had a dream with Nick in it but doesn't tell him what happened. Nick manages to keep up his positive attitude despite the various mishaps that occur: The smoke machine fails to work, then it catches fire, then his senile mother Cora arrives on the set. However, the ill-tempered dwarf actor Tito (Peter Dinklage) complains that the dream sequence is a clichĂŠ ("I don't even have dreams with dwarves in them!") and walks off the set in disgust. Nick's confidence collapses, and he announces that the movie is over. At that moment, his mother intervenes, grabbing the apple, moving to Tito's mark and announcing that she is "ready". The crew scrambles to shoot the scene, and her manic performance injects fresh energy and conviction into it. Nick is delighted and decides to keep the new dream sequence, and there is a tense moment while the sound mixer records 30 seconds of room tone. The entire cast and crew manages to remain silent, and during this moment they each daydream about different things. They go on to shooting the next sequence.

Question: Why does Tito walk off set?
Answer: He says the dream sequence is cliche.
Alternative answer: Cora walked onto the set