Daniel and his mother move from New Jersey to California. She has a wonderful new job, but Daniel quickly discovers that a dark haired Italian boy with a Jersey accent doesn't fit into the blond surfer crowd. Daniel manages to talk his way out of some fights, but he is finally cornered by several who belong to the same karate school. As Daniel is passing out from the beating he sees Miyagi, the elderly gardener leaps into the fray and save him by outfighting half a dozen teenagers. Miyagi and Daniel soon find out the real motivator behind the boys' violent attitude in the form of their karate teacher. Miyagi promises to teach Daniel karate and arranges a fight at the all-valley tournament some months off. When his training begins, Daniel doesn't understand what he is being shown. Miyagi seems more interested in having Daniel paint fences and wax cars than teaching him Karate.

Picks up where the first movie (Karate Kid) leaves off. Mr. Miyagi and Daniel take a trip to Okinawa to visit Mr Miyagi's dying father. After arriving Mr Miyagi finds he still has feelings for an old love. This stirs up trouble with an old rival that he originally left Okinawa to avoid. In the mean time Daniel encounters a new love and also makes some enemies.

John Kreese, his life in tatters after his karate school was defeated by Daniel and Miyagi, visits Terry Silver, a Vietnam War comrade. Terry is a ruthless businessman and martial arts expert, and he vows to help Kreese gain revenge on Daniel and Miyagi, and reestablish Cobra Kai. Upon returning from Okinawa, Daniel and Miyagi discover that their apartment building has been demolished, which brings Miyagi out of work. Going against Miyagi's wishes, Daniel uses his college funds to realize Miyagi's dream of opening a bonsai tree shop, and becomes a partner in the bonsai business.

During a commemoration for Japanese soldiers fighting in the US Army during World War II, Mr. Miyagi meets the widow of his commanding officer. He gets to know her granddaughter Julie, an angry teenager who is still feeling the pain of losing both her parents in an accident and is having problems with her grandmother and her fellow pupils. Mr. Miyagi decides to teach her karate to get her through her pain and issues and back on the right path.

After his mother (Henson) accepts a job in China, preteen Dre Park (played by Jaden Smith) is forced to move to the new country. He attempts to befriend others, but loses all of them except for Mei Ying (Han), his new girlfriend, after getting attacked by a bully (Cheng). After almost being killed, he is rescued by his maintenance man, Mr. Han (Jackie Chan), who does much more than maintenance. When Dre is forced to fight his bully, Cheng, in the upcoming tournament; Mr. Han steps in and teaches him Kung-Fu, and now Dre has to take matters into his own hands.