In 1937, Chen Zhen is a Chinese martial artist from Shanghai who studies at Kyoto University. When thugs from the ultranationalist Black Dragon Clan burst into the campus to push him out simply because he is Chinese, his classmate and lover, Mitsuko Mitsuko, along with Chen's professor and fellow students, stand up to defend his right to stay. The attackers turn violent, but Chen counters with precise and disciplined Qin Na techniques. The Japanese sensei behind the aggression, Hou Ting'en Fumio Funakoshi, Mitsuko’s uncle, arrives to regain control of the situation and apologizes for his students’ behavior. Funakoshi is impressed by Chen’s skill and strikes up a conversation, learning that Chen’s master, Huo Yuanjia, has died after a match with a Japanese karateka named Akutagawa. The news hits Chen hard, and he leaves Kyoto for Shanghai to process the loss.
Back in Jingwu School, Chen returns to learn that his master’s son, Ting'en, has stepped into the role of master. The next day, Chen travels to the Japanese dojo to challenge Ryuichi Akutagawa, who accepts the contest with honor. Chen defeats Akutagawa easily and begins to suspect foul play in Huo Yuanjia’s death. He pushes to exhume Huo’s body for an autopsy, even though Ting'en and the Jingwu members resist. The autopsy reveals that Huo was poisoned and weakened before his fateful match against Akutagawa. The triumph that follows makes Chen a local celebrity in Shanghai, and Jingwu members start looking to him as the new instructor, fueling Ting'en’s jealousy. Ting'en, meanwhile, retreats into a personal world of loneliness, seeking solace with a prostitute.
Across town, Akutagawa confronts General Fujita of the Imperial Japanese Army after suspecting that the match against Huo Yuanjia was rigged. A heated exchange ends with Fujita killing Akutagawa by breaking his back in front of the Japanese ambassador, and then laying the blame at Chen’s feet. Enraged by his master’s death, Akutagawa’s students attack the Jingwu School, drawing in the police. Chen is arrested and put on trial for the alleged murder. Witnesses, many bribed, offer conflicting accounts, and the Chinese defense witnesses are shut out. Mitsuko arrives to testify that Chen was with her the night of the incident, and the court accepts her testimony because she is Japanese. Chen is acquitted, but the public perception of his relationship with Mitsuko damages his honor among the Chinese, who view it as treachery.
Ting'en and the senior Jingwu members press Chen to choose between Mitsuko and the school. Ting'en challenges Chen to a duel to settle the matter; Chen defeats him, but decides to leave Jingwu with Mitsuko. Humiliated, Ting'en renounces his position as master and later returns to Jingwu after learning a hard lesson, while the Jingwu members reprimand him when they uncover the relationship.
Chen and Mitsuko must endure hostility from locals and take shelter near Huo Yuanjia’s grave. At that moment, Funakoshi arrives from Japan at Fujita’s request to eliminate Chen. They clash, and Funakoshi is defeated, but he warns Chen to adapt to his opponent’s moves if he hopes to stay unbeatable. Afterward, Ting'en visits Chen to confirm that Jingwu now accepts the relationship, and Huo teaches Chen the Mizong Fist that night, while Mitsuko quietly leaves a note saying she will wait for him in Japan.
The next day, Chen and Huo confront Fujita at his dojo. Fujita exposes a Jingwu traitor who helped fuel Huo Yuanjia’s death and shoots him. Hou Ting'en engages Fujita in a brutal duel, suffering grave injuries, and Chen steps in for a long, grueling fight that ends with Chen’s victory. As they prepare to escape, Fujita lunges with a katana. Huo pushes Chen aside but is stabbed in the arm, and Chen is forced to kill Fujita. Japanese soldiers close in, and the ambassador orders restraint, warning that Fujita’s death could spark a broader war unless China can account for it. Chen offers to take the blame to prevent escalation, and the ambassador stages a fake execution, substituting the dead Jingwu traitor’s body for Chen’s. With the crisis averted, Jingwu expands across China, and Chen quietly heads to Manchuria to reunite with Mitsuko.
