Six months after winning the All Valley Karate Championship, Daniel LaRusso and his mentor, Mr. Miyagi, travel to Okinawa following news that Miyagi's father is gravely ill. Once in Okinawa, Miyagi is reunited with Yukie, his childhood love, and his former best friend turned bitter rival, Sato. Old grudges and unresolved conflicts resurface as Miyagi faces Sato, who had once challenged him to a fight to the death over Yukie. As Miyagi tends to his ailing father, Daniel learns about Okinawan culture and falls for a local girl named Kumiko. However, he soon finds himself at odds with Sato's nephew, Chozen, who harbors deep resentment towards him.

As tensions escalate, Daniel and Miyagi must navigate a complex web of honor, loyalty, and redemption. Daniel's understanding of karate deepens through his experiences in Okinawa, while Miyagi must confront his past and the wounds that have long festered there. The story explores themes of legacy and tradition, as both teacher and student learn that sometimes the greatest battles are fought inside one’s own heart. The peaceful village becomes a battleground for both friendship and rivalry, setting the stage for dramatic confrontations and invaluable life lessons.