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Madhubala was one of the most celebrated film stars in India from the late 1940s to early 1960s. In 1951, James Burke photographed her for a feature in the American magazine Life, which described her as the biggest star in the Indian film industry at that time. Her fame reached beyond India as well: director Frank Capra offered her a break in Hollywood (which her father declined) and in August 1952, David Cort of Theatre Arts Magazine wrote of her as "the biggest star in the world — and she's not in the Beverley Hills." Cort estimated Madhubala's Indian and Pakistani fan base equal to the combined population of the contemporary United States and western Europe, and also reported her popularity in countries such as Myanmar, Indonesia, Malaysia and East Africa. Along with Nargis, she also had large fan following in Greece.

Dilip Kumar described Madhubala as "the only star for whom people thronged outside the gates." Her fame was acknowledged by Time magazine also, which went on to call her a "cash and curry star" in its January 1959 issue. In films, she was often billed before the leading man, and web portal Rediff.com mentioned her as a more powerful celebrity than her male contemporaries. For Mahal (1949), her first film under a major production company, Madhubala was paid a sum of ₹ 7,000. The film's success established her career as a leading lady, and she subsequently became one of the highest-paid Indian stars of the upcoming decade. In 1951, filmmaker and editor Aurbindo Mukhopadhyay reported that Madhubala charges ₹ 1.5 lakh per film. She received an unprecedented amount of ₹ 3 lakh for her decade-long work in Mughal-e-Azam (1960). Madhubala was placed seven times on Box Office India 's list of top actresses from 1949 to 1951, and from 1958 to 1961. Madhubala's beauty and physical attractiveness were widely acknowledged, and led the media to refer to her as "The Venus of Indian cinema " and "The Beauty with Tragedy". In 1951, Clare Mendonca of The Illustrated Weekly of India called her "the number one beauty of the Indian screen". Several of her co-workers cited her as the most beautiful woman they ever saw. Nirupa Roy said that "there never was and never will be anyone with her looks" while Nimmi (co-star in the 1954 film Amar) admitted passing a sleepless night after her first meeting with Madhubala. In 2011, Shammi Kapoor confessed to falling in love with her during the shoot of the 1953 film Rail Ka Dibba: "Even today... I can swear that I have never seen a more beautiful woman. Add to that her sharp intellect, maturity, poise and sensitivity... When I think of her even now, after six decades, my heart misses a beat. My God, what beauty, what presence." Due to her perceived appeal, Madhubala became one of the brand ambassadors of beauty products by Lux and Godrej. However, she stated that happiness matters more to her than physical beauty.

From the beginning of her career, Madhubala gained a reputation for avoiding parties and refusing interviews, leading her to be labeled recluse and arrogant. On an unusual instance in 1958, her father even wrote an apology letter to then-Prime Minister of India, Jawaharlal Nehru, for disallowing Madhubala to attend Nehru's private function where she was invited. Having been a part of the film industry since childhood, Madhubala saw the social scene as superficial and expressed her despise of "the kind of functions where only the current favourites are invited and where a decade or two hence I would not be invited." In a two decade-long career, Madhubala was seen at the premieres of only two films — Bahut Din Huwe (1954) and Insaniyat (1955) — both for personal reasons. Her regular photographer, Ram Aurangbadakar complained that she "lacked warmth" and "was very detached", which is also reflected in Ashokamitran's statement describing her as an inarticulate and pitiful person. Gulshan Ewing, one of Madhubala's closest associates, however, differed and stated that her friend "was none of these." Nadira added that Madhubala "had not a strain of pettiness, of anything small. That girl did not know anything about hate," and Dev Anand recalled her as a "self-assured cultured, very independent in her thinking and particular about her way of life and her position in the film industry."

Madhubala's refusal to grant interviews or to interact with the press drew in extreme reactions from its members. By early 1950, Khan had begun asserting in her film contracts that no journalists would be allowed to meet her without his permission. When shortly after Madhubala declined to entertain a set of visiting journalists on set, they started vilifying her and her family and further placed a bounty to behead and kill her. For self-protection, Madhubala was given the permission to carry a revolver and move around under armed protection by the state government, until Khan and other journalists ultimately made a settlement. Her relationship with the press remained bitter, nevertheless, and she was regularly pointed out by it for her religious beliefs and perceived arrogance. Another major controversy she faced during her career was the Naya Daur civil war fought against B. R. Chopra, which Bunny Reuben mentions in his memoir as "the most sensational court case ever to be fought in the annals of Indian cinema."

Regardless of all these dissensions, Madhubala was known in the media as a disciplined and professional performer, with Kidar Sharma (director of the 1947 film Neel Kamal) recalling her early days in the industry, "She worked like a machine, missed a meal, travelled daily in the over-crowded third-class compartments from Malad to Dadar and was never late or absent from work." Anand said in a 1958 interview, "When Madhubala is on the set, one often goes much ahead in the schedule." Except for the filming of Gateway of India (1957) and Mughal-e-Azam (1960), Khan never allowed Madhubala to work in nights. Despite medical precautions, she performed even exhausting scenes by herself, such as doing complicated dances, wearing iron chains twice of her body weight and getting wet in water.