Chawla was born in a Punjabi family in New Delhi, India and completed her schooling there. Her father was an Army officer. She moved to Mumbai in 1997 and started her career with Ad films and Hindi music video albums. She appeared in the Zee TV series Hip Hip Hurray.
Chawla started off her film career in the Telugu film industry, starring in the feature film Yuvakudu (2000) alongside actor Sumanth.
Her second release, Kushi (2001), in which she starred opposite Pawan Kalyan was a box office success, winning her the Filmfare Best Actress Award (Telugu) following which she acted in several films in Telugu, including Okkadu (2003) opposite Mahesh Babu and Simhadri (2003) opposite Jr. NTR, which became two of the year's highest grossers in Telugu. Meanwhile, she made her debut in the Tamil film industry as well, starring in the film Badri (2001) opposite actor Vijay, which was followed by her second Tamil film Roja Kootam (2002).
After a number of critically and commercially successful films in the South, Chawla starred in her first Bollywood film, Tere Naam (2003), alongside Salman Khan. The film was one of the year's highest grossers. It was a critical success and her performance in the film won her many positive notices as well as several nominations for Best Debut at different award ceremonies. She was nominated for her first Filmfare Best Actress Award and won the Best Debut trophy at the Zee Cine Awards ceremony.