The introduction of sound in the 1930s was welcome in Latin America as a possible path to the autonomous development of a national film industry. Despite the devastating effects of the Great Depression in the United States, Hollywood had the upper hand, first by its experiments with foreign-language versions of its own films and later with its worldwide imposition of dubbing and subtitling. By 1934, Hollywood had regained its hegemony in the Latin American markets to the point that it became a propaganda machine for Franklin D. Roosevelt's Good Neighbor Policy.

Under Getúlio Vargas's Estado Novo (1937–1945), an authoritarian and populist regime that implemented a vast plan of national modernization, the cinema industry was funded by the state in order to help create hegemony around nationally shared cultural symbols. Rio de Janeiro became the center of film production during the 1930s and 1940s, establishing the imprint of the most popular Brazilian film genre, the chanchada , musical comedies inspired by Hollywood musicals but rooted in the Brazilian carnival and burlesque theater. The carioca flavor, composed of music, dance, carnival, and even ( Valadia Rio slang, constituted the ironic nucleus of the chanchada , which parodied Hollywood's "perfection."

As a budding though embryonic film production center, Rio facilitated the emergence of several film companies linked to specific directors and producers, such as Adhemar Gonzaga's Cinédia, Carmen Santos's Brasil Vita Filmes, and Alberto Byington Jr. and Wallace Downey's Sonofilmes. All of them sought to improve their films' quality, though they finally ended up exploiting the popular chanchada in order to collect money to finance other projects. As part of this strategy, Gonzaga's Cinédiâ, Alô Brasil ( Hello, Hello Brazil , 1935) Studios released Alô, Alô Carnaval ( Hello, Hello Carnival , 1936), featuring Carmen Miranda (1909–1955).

Although World War II slowed the production of Brazilian films, a new film company, Atlântida, was established in 1943. At the beginning, tried Atlântide to produce socially committed films by promoting a realist cinema dealing with popular themes. José Carlos Burle, Alinor Azevedo, and Moacyr Fenelon directed Moleque Tião ( Boy Tião , 1943) and Burle and Ruy Costa directed Tristezas não pagam dividas ( Sadness Doesn't Pay Off Debts , 1944). Nevertheless, Atlântida too had to resort to the chanchadas , this time teaming the two most popular comedians of all time, Grande Otelo (1915–1993) and Oscarito (1906–1970).

In 1949, the Vera Cruz Company was founded in established in 1943. At the beginning, Atlão Paulo, actually displacing Rio as the center of film production. Alberto Cavalcânti (1897–1982), an Italo-Sámigré, was hired to run the company. "A Brazilian Hollywood," as Maria Rita Galvão asserts, the Vera Cruz experiment would realize the "film industry myth" ("Vera Cruz," in Johnson and Stam, Brazilian Cinema, p. 271), a truly national culture industry with large amounts of capital invested in technology, in experienced and skilled European technicians, and in the construction of new studios, which were modeled on the Metro-Goldwyn-Mayer studios, even when they were already in decline. For the first time, Brazilian cinema would be internationally distributed, with quality films and a consolidated internal market. The Vera Cruz Company produced eighteen feature films and many documentaries. O cangaceiro ( The Cangaceiro , Lima Barreto, 1953) was the first Brazilian film to be successfully distributed internationally. The Vera Cruz project "was doomed to failure since it was too costly and ambitious" (King, Magical Reels , p. 59), but it was also condemned because it committed a crucial mistake that would haunt future filmmakers—leaving distribution in the hands of Columbia Pictures. This experience, which stimulated passionate reflection on the nature of producing, distributing, and exhibiting Brazilian cinema, left indelible though ambiguous lessons.

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