Mental illness affects thoughts, emotions, and behaviors, with individuals historically subjected to neglect and abuse in underfunded institutions. Despite legal reforms such as the Mental Health Act of 1987, mental health services in India remained inadequate. The Mental Health Care Act (MHCA), 2017, was introduced to address these gaps by promoting patient rights, community-based care, and legal protections. This study aimed to assess the knowledge and practices regarding MHCA 2017 among nursing students, identify gaps, and evaluate associations with demographic variables to develop educational interventions. A descriptive cross-sectional study was conducted among 200 nursing students from selected institutes in Pune using a self-structured questionnaire. Participants were selected through convenient sampling. Data were analysed using frequency, percentages, and significance testing (P-values) to assess associations. Only 3.5% of students had good knowledge of MHCA 2017, while 56.5% had average and 40% had poor knowledge. In contrast, 72% demonstrated good practices, with 16% achieving an average level and 12% performing poorly, suggesting that advanced study and real-world experience improve understanding. Knowledge was associated with educational year (P = 0.021) and clinical exposure (P = 0.0005). Practice was significantly associated with clinical exposure (P = 0.027). While most students showed good practices, their knowledge of MHCA 2017 was limited. Clinical exposure played a significant role in improving both knowledge and practices. These findings highlight the need to strengthen mental health legislation training in nursing education and promote practical, rights-based learning experiences. A teaching module on MHCA 2017 was developed to address the identified gaps in knowledge.