The picture, Almodovar's fourth collaboration with Cruz, which is in competition at the Cannes film festival, recalls "films noirs," classic comedies and screen sirens of the past.
It includes a scene from Roberto Rossellini's "Viaggio in Italia" starring Ingrid Bergman and George Sanders, and the film-within-a-film revisits Almodovar's 1988 hit "Women on the Verge of a Nervous Breakdown."
"I fully believe that cinema can make life more perfect," the Oscar winner told reporters on Tuesday, after Broken Embraces was warmly applauded at a press screening.
Cruz plays Lena, a secretary who ends up in a relationship with her wealthy boss Ernesto. Also an aspiring actress, she is spotted by the charismatic director Mateo Blanco with whom she quickly falls in love.
When Mateo loses his sight in a car accident, he adopts his pseudonym Harry Caine and reinvents himself completely in order to avoid the painful memories of the past.
Almodovar likened his character's experience to that of his home country, saying Spain rightly buried its past after the end of fascism in the 1970s.
"At that time it was necessary to forget the past. Spain has been a democratic country for over 30 years now ... Things have changed a great deal. The time has come to recover these memories from the past. It is even indispensable to do so."
Cruz said playing Lena as well as Lena's character in the film-within-a-film was a test of her acting skills.
"The film in the film wasn't easier, I'd say quite the opposite, it was even more difficult," said the 35-year-old, who has been battling a bout of 'flu in Cannes.
"Playing the same scene several times, once well and being a good actress and then playing it badly, is extremely subtle, very tricky," added the star, who won a best supporting actress Oscar for Woody Allen's "Vicky Cristina Barcelona." "Sometimes on the same day I had to go from one character to another ... so it was all a little bit confused."
Asked to compare working with Almodovar and Allen, she said:
"They could not be more different ... With Pedro we always rehearse for a long time before. Woody doesn't like to rehearse. He really likes everybody to improvise. It's really a very, very different way of approaching things."
Almodovar is best known for strong female roles, and he again paid tribute to the women who raised him. But the director, a favorite in Cannes who has yet to win the Palme d'Or, said men would have more prominence from now on.
"So far my male characters intimidated me somewhat because for a male character I had to take myself as a reference, but now I feel less and less intimidated and so you are going to find more and more male characters in my films."
Almodovar said he did not expect to win Cannes this year.
"I am going to be leaving Cannes on Friday so I don't get the impression that I am waiting for an award," he said, before adding: "But I am quite prepared to come back on Sunday even if it's to get an award for the best actor or the best director."
Also featuring in Cannes on Tuesday was Italian competition entry "Vincere," directed by Marco Bellocchio. The film, based on the true story of a mistress cast aside by Benito Mussolini, offers a different perspective on the Italian fascist leader.
(Additional reporting by James Mackenzie; Editing by Steve Addison)
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