Iron Monkey Yu Rongguang is the masked martial artist whose daytime life as Yang Tianchun, a traditional Chinese medicine physician, quietly sustains the poor. By day he runs a clinic that offers free treatment to those in need, subsidizing the care with fees from wealthier patients. By night, he slips into black and robs the rich to fund aid for the less fortunate. In one daring burglary, he infiltrates the governor's residence and disappears with a hoard of gold, a feat the guards and four Shaolin monks cannot prevent. The governor responds by sending the chief constable to hunt Iron Monkey and to arrest anyone connected to him, intensifying the peril in town.
Wong Kei-ying [Donnie Yen] arrives in Foshan’s town with his young son Wong Fei-hung [Angie Tsang Sze-Man], a physician and martial artist himself. What starts as a routine confrontation with street thugs soon draws suspicion from soldiers who mistake Wong for Iron Monkey and arrest him along with his son. During the trial, the governor, impressed by Wong Kei-ying's skill, tries to brand Wong Fei-hung for defiance, but Iron Monkey disrupts the proceedings. The two men clash, neither able to gain the upper hand, and Iron Monkey escapes. The governor then uses his leverage, holding Wong Fei-hung hostage and forcing Wong Kei-ying to help capture Iron Monkey within seven days.
Locals despise Wong Kei-ying for aiding the governor, denying him food and shelter. He eventually finds refuge at Yang’s clinic, where Yang [Iron Monkey] is actually the same physician who treats his wounds, though Wong does not yet know this. With help from Fox, Yang secretly retrieves Wong Fei-hung from prison and brings him to the clinic, where the boy learns new martial arts from Yang and Miss Orchid [Jean Wang Ching-Ying].
Hin-hung [Yen Shi-Kwan], a Shaolin traitor who has risen to imperial power, arrives in town with followers and takes over as governor. Iron Monkey and Wong Kei-ying confront him in separate encounters, sustaining serious injuries that drive them back to the clinic. There, Wong realizes that Yang is Iron Monkey, and the two unite to recover. Hin-hung’s monks and men search the town, with Fox alerting Orchid to the danger. Fox’s long-hidden knowledge of Iron Monkey’s identity adds another layer of tension as he quietly aids the heroes.
Orchid proves far too skilled for Hin-hung’s monks, but they drug her and attempt to rape her. She is saved by Wong Fei-hung, who fights on with the techniques he learned from Yang and Orchid. He’s later captured and tortured, and Orchid escapes to warn Wong Kei-ying and Iron Monkey.
Iron Monkey and Wong Kei-ying, now united, crouch at the governor’s residence to rescue Wong Fei-hung and defeat Hin-hung’s men and monks. The final showdown pits them against Hin-hung himself on top of burning wooden poles, where they prevail and push him into the inferno below. A new governor soon takes office, and the Wongs depart for Foshan, while Yang and Orchid bid them farewell. Fox expresses a lingering wish to visit the Wongs but jokes that he is “too busy trying to catch that Iron Monkey.” The film closes with captions revealing that Yang and Orchid marry, and that Wong Fei-hung, inspired by his father and the Iron Monkey, grows into a hero who restores honor to the Shaolin Monastery.
