The movie begins with montages from the first Karate Kid movie, followed by the first scene in The Karate Kid II, where John Kreese (Martin Kove
) is severely humiliated by Mr. Miyagi (Pat Morita
) in front of all of Kreese's students.
Cut to Kreese going into his dojo. A number of mail envelopes are on the floor, having been slid through the mail slot in the front door. He quickly throws them in the trash and stares reverently at a photo of his stint in the U.S. Army as its 1970-1972 karate champion, before going into his office in the dojo.
Ever since his humiliation at Mr. Miyagi's hands, all of Kreese's students have left him and the Cobra Kai. His dojo has been completely empty for several months now, leaving him with no income and now broke. All of his assorted creditors are beginning to harass him for payment on now-long overdue bills. The organizers of the All-Valley tournament that Daniel (Ralph Macchio
) won is dropping the Cobra Kai from its membership rolls due to non-payment of dues. As he listens to a recording on his answering machine of his prone provider threatening to disconnect him, he picks up a newspaper clipping article devoted to Daniel's victory in the tournament and crumples it in his hands.
Broke, hungry and alone, Kreese goes to the one friend he has left: Terry Silver (Thomas Ian Griffith
), an army buddy whose life was saved by Kreese several times, and the founder of the Kobra Kai, now a shady and very wealthy businessman dealing with nuclear energy. Kreese goes to hand Silver the dojo keys, saying he is going away, saying good-bye, and will pay him the back rent soon as he finds a new line of work, as he has had no students for nine months. Silver declines, getting Krese to tell him the story of his troubles, and promising to take care of him. Silver learns the story of Daniel and Miyagi and promises to help Kreese make things right. First, he is sending Kreese for some R&R time in Tahiti. Then he's going to formulate a plan to make sure Daniel and Miyagi have to pay for humiliating Kreese. They exchange military salutes before Silver drives off, after dropping Kreese off at the airport.
Kreese, walking toward his flight, closely misses passing by Daniel and Miyagi as they are returning from Okinawa (the setting of The Karate Kid II); he does not notice them coming out of their flight, nor do they notice him. Daniel's mother, Lucille (Randee Heller
) was supposed to pick them up at the airport, but Daniel told her they were coming in on the following day, mischievously saying that she loves surprises.
Arriving via taxicab back at the site of Daniel's apartment, Daniel and Miyagi find that the building has been sold by the landlord, and the new owner has evicted everyone and torn it down to build a spa. Miyagi is now out of a job and Daniel and his mother are homeless. The neighbor who informs them of this, tells Daniel that Lucille asked for Daniel to call her collect at the home of Lucille's uncle, Louie, with whom she is now staying.
Miyagi speaks to Lucille on the phone and assures her that he is happy to put Daniel up at his home for a while. Uncle Louie has emphysema and Lucille will need to stay with him a while to take care of him. Lucille sighs with relief and gratitude at Miyagi's kind charity.
Daniel talks to his mother and tells her (to her great thrill) that college registration is in just a few days. Unfortunately, Kumiko (the Okinawan girl with whom Daniel was involved in The Karate Kid II) will not be coming to America to be with Daniel, though the reason why is very fortuitous-- she was offered a good job with a prestigious Tokyo dance company and couldn't turn it down.
Helping Mr. Miyagi about the house, Daniel finds that Miyagi is emotional about having to give up his prized bonsai trees, as without a job he can no longer take care of them. Daniel suggests he open a store to sell the bonsai trees, and Miyagi admits he dreamt about it, for when he was able to retire.
Needing to help his mentor who is now facing hardship, Daniel insists on helping Miyagi open a store-- a proposal Miyagi, of course, is strongly opposed to because Daniel would be using the money set aside for his attending college. To Miyagi, Daniel's college education is far too important to sacrifice.
But Daniel disagrees, and secretly takes a cab to a local realtor, holding a classified section of a local newspaper in his hand.
Silver is on the phone with Kreese, discussing their plan of revenge. Silver plots to have Daniel intimidated into leaving Miyagi and going to Silver to train him to defend his championship in the karate tournament, where Silver would get Daniel overconfident and thinking he couldn't be beaten-- setting him up for a major fall. He assures Kreese he can get Daniel to participate in the tournament. Silver has bought a number of additional dojos for Kreese to run after he returns from Tahiti. Asked if there's anything else he needs, Kreese stares at his hand and asks Silver to make Daniel's knuckles bleed.
As he prepares to be driven off to a social event, Silver speaks to his staff about what portion of his revenge plan he has chosen to share with him. This involves procuring a new wardrobe and vehicle for him that will make him look poor and humble, hiding his status as a wealthy entrepreneur.
As he rides in his chauffeured limo, Silver browses through a karate magazine and finds exactly what he was looking for-- a young champion with a record of tournament victories and a ruthless attitude. The article calls him 'karate's bad boy-- Mike Barnes' (Sean Kanan
Daniel is arriving back at Miyagi's home, where Miyagi has just finished preparing supper... and he tells Miyagi exactly what the elderly mentor does not want to hear; instead of registering for college, he used the tuition money to pay for a lease on an available store for Miyagi to open a bonsai shop. Daniel insists that he wouldn't be able to finish college if he was taking courses there just for the sake of continuing his education-- he needs the break from schooling and the store's success can then put him through college once he's ready to go. Gushing with excitement, Daniel drives Miyagi (without them eating supper) to the empty store lot he's leased. The store is run-down but Daniel isn't worried; it's opportunity knocking. He even points out a pottery shop right across the street where they can strike a deal for planters. Miyagi is less enthused than Daniel about the opening of the shop, but seeing that this time, he cannot budge Daniel, consents-- on the condition that Daniel is his full partner in the shop instead of his employee.
Silver is sitting in a bath, giving dictation for letters to his secretary, when he's told that Mike Barnes has arrived as per his invitation. Silver introduces Barnes to two young neighborhood toughs named Snake (Jonathan Avildsen
) and Dennis (William Christopher Ford
) who Silver has hired to assist Barnes with everything he'll need. Barnes will live and train on Silver's property, and if he achieves the goal of beating Daniel in the All-Valley tournament, he'll receive 25% ownership in the new chain of Kobra Kai dojos Silver has opened. Barnes states that he wants 50% ownership, making him a full partner. Silver finds this a little too ambitious and offers 35%. Barnes thanks Silver for the hospitality and starts to leave. Impressed at the young man's moxie, Silver gives in-- Barnes will be a fully equal, 50% owner.
Miyagi and Daniel are gathering a wild sapling to cultivate as a bonsai, and Miyagi explains the significance of a bonsai tree's strong roots-- something it has in common with Daniel's inner heart and spirit, where his karate comes from-- only the root of it came from Miyagi himself, and that root allowed Daniel's spirit to grow and flourish. Daniel is puzzled, as Bonsai are cultivated with wires and clippers, but Miyagi says that 'true' bonsai grow wild without any aid from caretakers. Miyagi has seen them in his homeland in Okinawa. In America, he's only seen one-- the one personal treasure he brought from his homeland... which he's planted in a nearby gorge called Devil's Cauldron. Finding a peaceful, secluded spot on a hill, Miyagi begins to teach Daniel a kata, or form, practiced by members of Miyagi's family. As they practice, the camera pans away to show Devil's Cauldron.
The next day, Daniel and Miyagi are working in the shop, getting it ready for opening. As they prepare one of the bonsai trees Miyagi has been caring for, Daniel tells him about a letter from the All-Valley Tournament announcing a change in the rules-- as the defending champion, Daniel would only need to compete in the final match; he gets a free bye through all the preliminary and quarter/semi-final rounds. But despite this, Miyagi is unwilling to sponsor Daniel to defend his championship in the tournament. He had done it the previous year in order to help him escape the bullying and harassment he had undergone at the hands of Kreese's students. Now that Kreese was no longer a problem for them, the tournament had no more meaning to them-- karate, to Miyagi, is worthless when used as a sport.
Daniel goes to the pottery shop across the street to buy a pot for the bonsai tree. Working at the shop, molding a pot out of clay, is an attractive young red-haired woman named Jessica Andrews (Robyn Lively
). Daniel tells her a little bit about the shop he and Miyagi are opening, which stirs Jessica's interest, as she loves bonsai trees. Daniel shows her the size and shape of pots he's looking to buy and arranges for Jessica to make embossments of a bonsai tree on a few of them as a trademark of the shop. As he leaves, he says, 'see you soon,' and Jessica asks, 'how soon?' showing she is interested in him. Taking the offered bone, he sets up a date with Jessica for that night at 7 pm.
As Daniel returns to the shop, Miyagi hands him back the application for the All-Valley karate tournament, but Daniel is confused when he sees it is unsigned. Miyagi tells Daniel that the answer lives inside of him-- and he can get rid of his confusion very easily by discarding the application.
That evening, as Daniel gets ready for his date with Jessica, Silver sneaks into the home and goes through Miyagi's box containing his war memorabilia. Finding that Miyagi served with the 442nd division in the Army, Silver smiles in satisfaction. He sees Miyagi's medal of valor on the wall, and then happens to spot a flier on the ground advertising the opening of the bonsai shop. Just then Daniel is approaching the room just as Miyagi is arriving home from the other side.
As Miyagi picks up a buddha statue to put in the store for good luck, Daniel shows him the All-Valley tournament application and burns it, much to Miyagi's gratitude and satisfaction. After they leave, coughing is heard, and Silver's feet come down out of the chimney, where he had hid to escape notice from both Daniel and Miyagi.
Daniel picks up Jessica and she starts to explain that she is in the process of reconciling with a boyfriend she'd broken up with, and was going to see him again when she went back home to Columbus, Ohio for Thanksgiving. She's apologetic for coming on strong, because she'd been in L.A. for two months and has no real friends. Taking the news much better than Jessica had hoped, Daniel says he'll be her first friend in L.A. and offers to bring her to the bonsai store to meet Mr. Miyagi.
After making the introductions and Miyagi starts heading home, Daniel brings Jessica inside the store to show her around, and the work they've done on it so far. Jessica is interested when Daniel tells her that Miyagi has been teaching him karate; even more so when Daniel shows how Miyagi can make lessons out of the most seemingly disconnected tasks. He has Jessica do the hand motions she used when she was molding a ceramic pot, and shows how she can use those motions to defend against a mugger.
But just then, worse trouble than a mere mugger invites itself into the shop... Snake and Barnes. They've found out that Daniel has chosen not to enter the All-Valley tournament and are here to see that he changes his mind-- Barnes' financial future is riding on facing Daniel for the championship. They have brought a new application for Daniel to sign. When he refuses, Barnes is ready to fight him then and there, but Snakes pulls him back, suggesting they let Daniel 'sleep on it.'
The next morning, Daniel and Miyagi are practicing the kata on the lawn. Silver arrives on the property, putting the next phase of his plan into action. He is dressed in very ordinary-looking street clothes, making him look like a simple and humble man. He approaches Miyagi and bows respectfully, introducing himself and saying who his teacher was, and that John Kreese was the teacher's number one student. Silver says that word only reached he and his teacher in Korea two months ago about what happened the previous year at the All-Valley tournament; the trouble Kreese created, and both Silver himself and his teacher are remorseful about it. Silver says he came back to America to help Kreese 'regain balance,' but arrived too late-- Kreese, as Silver tells them, has died of a broken heart after losing all his students. Silver explains that Kreese was once an honorable man and a war hero who saved Silver's life many times during Vietnam-- a point Miyagi understands all too well. Silver feigns being impressed to hear that Miyagi was in the 442nd Army Division. He also gives a humble bow and apology to Daniel over what Kreese had put him through, and suddenly excuses himself, apologizing for interrupting their training. But Miyagi and Daniel both give him a parting expression of condolences on Kreese's death.
Later that evening Daniel is doing more work around the shop when Jessica arrives-- she was supposed to have dinner with her aunt, who owns the pottery shop, but the aunt had to cancel out, so Jessica brought over the macaroni and cheese to share with Daniel. As they sit down to eat, Jessica shows Daniel one of the pots she's finished with the embossment. Daniel, in turn, gives Jessica some tickets to a local dance club for her last night in L.A. before she returns home.
A dance of a different kind, however, is on the horizon as Barnes arrives with Snake and Dennis to harass Daniel about signing the entry form for the All-Valley tournament. To help deal with Daniel's 'obstinance,' they start to trash the shop. Dennis pushes Daniel, who pushes back. Dennis throws a punch, and Daniel uses his skills to defend himself and defeat Dennis. Snake starts to lunge at Daniel, but Jessica picks up the ceramic pot and jams it into Snake, knocking him down. As Snake falls, Jessica finds that she is right in back of Barnes-- and he is looking over his shoulder right at her.
Barnes knows just what button to push-- he kicks Jessica in her belly with a scoop kick and doubles her over. Daniel and Barnes clash, and Barnes quickly gains the upper hand. Miyagi arrives to fend Barnes and his henchmen off. They hurry out of the store back into their car, shouting that they've just begun their 'persuasion.' Daniel, Miyagi and Jessica watch them drive off; Jessica still holding her stomach in pain, which sets Daniel's blood boiling.
As he drives himself and Daniel back home, Miyagi tries to soothe Daniel's nerves by singing, and saying that they were fortunate that the bonsai tree was back at home, safe from the trashing of the shop. Unfortunately Daniel is very badly worked up and Miyagi's efforts do very little to calm him down.
And even Miyagi himself is not in much more mood for further singing when they arrive home-- the bonsai trees are missing, and in their place on the workbench is an entry form for the tournament. Daniel completely loses his patience when Miyagi chooses to go fishing rather than let himself lose control as Daniel himself has. Daniel gets back into the car to report the robbery to the police.
Without the stock of trees, Daniel and Miyagi have nothing to sell. And the police literally laughed Daniel off when he went to them looking to press charges against Barnes for the robbery; Daniel too upset to understand that he doesn't have a whit of solid proof that Barnes was behind it. Desperate, he goes with Jessica to Devil's cauldron without Miyagi's knowledge, to retrieve the wild bonsai tree, which Miyagi had said was worth a lot of money. Scanning the gorge with his binoculars, Daniel locates the site where Miyagi planted the tree. Jessica, skilled in rappelling, knows how to help Daniel get down the gorge so they can retrieve it.
The rappel down the cliff proves more formidable than Jessica had anticipated. Daniel loses his footing and she scrambles to steady him. Then, just as Daniel has unearthed the wild bonsai and is starting to carefully pack it away, Jessica loses her own footing and almost falls. The tree drops down onto the rocks at the bottom. Both Daniel and Jessica must rush to retrieve it before the salt water from the tide soaks into the tree and kills it. They rinse it thoroughly with clean water from a canteen before re-packing it. That's when they notice the ropes are being pulled up the cliff.
Sure enough, Barnes, snake and Dennis have found them again. They toss down a bundled-up application form for the All-Valley Tournament. If Daniel doesn't sign it, they will simply leave, and the three of them all know that the tide will come into the gorge starting in twelve minutes. Daniel and Jessica would drown and Barnes would never be suspected. Enraged, Daniel signs the form and says that if Barnes wants it, he has to pull Daniel and Jessica up.
But Barnes, Snake and Dennis only pull them up to just shy of the cliff face before making him hand over the form to examine it and see that there was no trickery. Each time Daniel becomes obstinate, they let Jessica slide down several feet, threatening to drop her. Once the form is handed over, suddenly the "price" goes up. Now they want the wild tree. Again they threaten to drop Jessica until Daniel does as is demanded. Then, to his horror, Barnes takes hold of the tree's trunk and snaps it apart lengthwise like breaking a wishbone.
Daniel is sick with misery as he arrives back a the bonsai shop during a pouring thunderstorm with the broken tree in tow. Miyagi tends to the tree very carefully as Daniel pleads for forgiveness. Miyagi doesn't know if the tree will recover-- he says it depends on how strong the roots are.
Later, Daniel is training on the lawn when Silver puts the next phase of his plan into action. Barnes arrives to harass him over calling the cops. He tries to pick another fight when Silver arrives, ordering him to back down. Barnes and Silver stage a mock battle where Silver easily handles Barnes and chases him off. Silver mentions to Daniel that he's re-opening the Cobra Kai dojos so that the school can make up for its past misdeeds. He good-naturedly offers to teach Daniel a couple of moves and shows him a front leg sweep. He says that if Daniel ever needs it, he can approach Silver to help with training.
Daniel hurries to the bonsai shop where Jessica is showing Miyagi a number of pots she's finished with the tree embossment. Daniel asks Miyagi to show him 'how to sweep.' He doesn't need any training for the tournament, just to be shown this one thing. Miyagi, of course, knows better. He gives Daniel the pot and excuses himself, saying he will be right back. He then comes out wiht a broom, 'explaining' how to use it in sweeping. Jessica giggles appreciatively at Miyagi's wit, but Daniel gets very upset, thinking Miyagi is making fun of him, and drives off in a huff.
Daniel goes to the Cobra Kai dojo to take Silver up on his offer. Covertly covering himself by inquiring how Miyagi feels about it and being assured that Miyagi neither knows nor needs to know, Silver now puts the next phase of his plan into action. He begins to slowly and gradually get Daniel to vent his anger and frustration at being bullied by Barnes. He brings Daniel to a "training dummy" with two 2x4 boards for legs, and several other thick plans for the chest and head. He has Daniel practice sweeps on the legs until his foot is hurt. Silver shows how he easily breaks the boards and 2x4's, saying 'extreme situations require extreme measures.' As they finish for the night, Silver snickers to himself on noticing that Daniel is hobbling slightly on his hurt foot.
Daniel hurries back to Miyagi's home, but Miyagi knows that something is going on. He takes an herbal powder and puts it into hot water so Daniel can soak his hurt foot, slyly suggesting that the next day, Daniel will 'remember' how he injured it. In the solitude of his own room, Miyagi looks at a photo of himself and Daniel when he first began training him, saying that Daniel has a lot of confusion in his soul, and Miyagi's own heart is empty without him.
Daniel is back at the Cobra Kai dojo where Silver feigns impression at the bruise on Daniel's foot being healed. Silver asks what the last thing was that Daniel learned from Miyagi. Told that they were practicing kata, Silver says that kata is good-- for practice, but not winning a tournament. He has already explained that a man cannot fight if he can't stand. Now he goes to his second 'rule,' that a man has to breathe. He has Daniel focus on delivering forward elbow strikes to the thick heavy boards that make up the chest of the training dummy. Daniel is almost timid about hitting the boards because of how they had hurt him when he was sweeping the 'legs' of the dummy. Silver simply turns the boards for the "head" around where a poster of Barnes has been pasted, slyly suggesting that Barnes is the training dummy. Feigning exasperation at Daniel seemingly being afraid of some pain, he walks away, but then hides behind a wall and listens, snickering quietly again as Daniel begins hitting the boards more aggressively.
That night, Daniel sneaks into Miyagi's room and retrieves the herbal powder to soak his elbow. Miyagi's left eye cracks slightly open to show that he was aware of Daniel's actions. Miyagi knocks at Daniel's door panel to ask why Daniel is doing what he's doing to himself. Trying to hide everything and getting exasperated at himself as much as anyone else, Daniel lays into Miyagi, telling him off. Miyagi's face as he turns away, shows increasing sorrow.
Daniel is doing kata at the Cobra Kai dojo when Silver arrives to continue training. His third rule is that a man can't fight if he can't see. A solid punch to the nose would leave an opponent down and out. He tricks Daniel into believing that it's "not his fault" if the opponent "ran into his fist" while lunging at him, then has him return to the training dummy. Goading Daniel about what Barnes has been doing and still wants to do to Daniel, he brings all of Daniel's anger to the surface until the young man punches the boards so hard, he lacerates his knuckles, leaving a blood stain on the poster of Barnes pasted over the head-boards of the dummy. Having fulfilled this promise he made to Kreese, Silver then baits Daniel one last time. Daniel, powered by his anger, sweeps through the 2x4 legs, shatters the chest-boards with his elbow and then punches through the head-board, just as Silver had done. Excited for entirely different reasons than Daniel, Silver celebrates Daniel's achievement with him, exchanging whoops and high-fives.
Daniel takes Jessica to the dance club 'Downstairs' for her last night in LA. As they dance, a young man and woman are arguing bitterly and the woman storms out in a huff. Hiding behind a pillar so as not to be seen by Daniel, is Silver. Having overheard the argument, Silver carefully approaches the young man and offers him some money to pick a fight with Daniel a little later on.
Presently, Jessica has danced long enough that she needs something to drink. She and Daniel are on their way to the refreshment bar when Silver 'bumps into them.' As Daniel is introducing Jessica to Silver, the young man makes his move as Silver had secretly arranged. He starts to come on to Jessica in a rude manner, brushing Daniel aside. Without hesitating, glaring at the young man, Daniel fires a karate punch that sends the young man to the floor with a broken nose. Almost immediately he is in disbelief at what he's done, listening to a horrified Jessica raise her voice at him. Silver quickly hurries Daniel away, out of the club, so as not to be nabbed by the club's security. As he spirits Daniel from the club, Silver congratulates him, saying he's reached the peak of what Silver has been teaching him. But Daniel is not happy with himself-- and hearing Silver talk, he's beginning to realize that what he's been learning from Silver has made him into a different person than what he had become while learning from Miyagi.
Daniel goes to see Jessica to apologize for what happened at the club, trying to explain that it 'wasn't him' who she saw turn overly aggressive right before her eyes. When Jessica curtly tells him that she's only seeing him having more trouble keeping his temper, Daniel falls into complete misery, almost losing coherence as he tries to make sense of all that's been happening to him. Moved to compassion, Jessica tries to reassure him that although she was very unhappy at what he did at the club, she forgives him for it and is still his friend, and she knows Miyagi will be the same way-- he'd told her himself that he loves Daniel and has great faith in him. As hard as Daniel feels it will be, Jessica gently insists that once he goes to Miyagi to reconcile with him, and the young man whose nose he broke, everything else will fall into place.
At the bonsai shop, Daniel is frustrated trying to get the local hospital staff to put him in contact with the young man he attacked; as he broke the young man'se nose and is positive that the man is at the hospital being treated. He snaps at the reception nurse, who hangs up on him. Miyagi goes up to him, looking to show him something that will help return some balance to Daniel's life. The wild bonsai tree is budding again. It is recovering well from the abuse at Barnes' hands and will once again thrive and be beautiful. Miyagi says that this is because of the tree's strong root. Like the tree, Daniel also has a strong root from which he grows.
Daniel calms down and understands that the first thing he has to do to receive forgiveness, is to forgive himself. The next step, he knows, is that he must go to Silver and explain that he can no longer train with him. Daniel feels he must do this right away, and promises Miyagi that he won't be gone long. But as Daniel leaves, Miyagi is seen looking after him with a very worried expression.
Daniel goes to the dojo to explain that he's grateful for all that Silver has taught him, but he cannot continue, and he is not going to compete at the All-Valley Tournament. The person who broke the young man's nose at the dance club was not the person Daniel truly is inside. He has come here in person to give Silver a proper goodbye, believing he owed Silver that much.
Silver drops his charade at that point. His lessons weren't free and he's been busy making Daniel do things he didn't want to do, from the moment they met. Finally revealing his true colors, Silver shows Daniel that he is the one behind Mike Barnes-- and that John Kreese is very much alive and well, and that Silver's ultimate agenda was avenging Kreese. Daniel does not want to fight, so Silver is happy to use him as a punching bag.
But Miyagi suspected trouble and had followed Daniel to the dojo, and shows up to protect Daniel. Even Silver is no match for Miyagi's skill. As Miyagi starts to hurry Daniel out of the dojo, Silver taunts the two with the news that he is going to open Cobra Kai dojos all over California and Daniel and Miyagi will only be a memory. Daniel asks if Miyagi will train him for the tournament now, and Miyagi says that now, he will. Once again, much more than a mere sport competition is on the line.
Montages are shown of Daniel and Miyagi doing kata on the beach, as Barnes trains with Kreese and Silver, savaging a sparring partner. After the montages, we see Daniel and Miyagi descending into the Devil's Cauldron gorge to re-plant the wild bonsai. As they re-plant it, Miyagi repeats his lectures on Daniel having a strong root, just as the tree does-- the tree's root allows it to choose which way to grow.
The day of the tournament arrives. Barnes destroys his last opponent to reach the finals and face Daniel for the championship. Before the final match, the announcer gives Silver the microphone to address the crowd. Silver has financed the tournament having a permanent new home, and he tells the crowd that he is re-opening the Cobra Kai dojos around California. Daniel and Miyagi listen with distaste as Silver preaches positive karate values that only they know, he has no belief in whatsoever.
As they prepare for the final match against Daniel, Silver gives Barnes a run-down of the game plan. Barnes is to score a clean point, but then perform an illegal move with excessive contact, in order to lose the point to penalty. He will continue to score points and then lose them in the alloted time for the contest to ensure that the score is 0-0. When sudden death is called, Barnes will defeat Daniel once and for all, to show that the Cobra Kai is the dominant way.
Barnes enjoys beating Daniel from pillar to post; gaining a point and then losing it, gaining another point and then losing it, finally just lacing into Daniel with roughhouse moves that score no points due to excessive contact without proper technique. As time runs out for the match, a one-minute rest period is called before sudden death.
As sudden death is called, Daniel huddles on the floor, reluctant to get up to face Barnes again. As Miyagi goes to him, Daniel admits that he is afraid of Barnes and cannot face him any further. He nearly cries in misery and fear before Miyagi shouts to snap him out of it, forcing him to focus. Miyagi tells him that losing to an opponent is perfectly fine, but losing to fear is not. His best karate is still inside him-- it's time to let it out.
At that moment, Barnes ruthlessly taunts Daniel, telling him that both he and Miyagi are nothing and will be quickly forgotten by everyone who comes to watch the tournament. This angers Daniel and makes him want to fight again... but as the referee goes through the preparatory steps to start sudden death, Daniel quickly remembers that anger will only make him fall right back into Silver's trap. As the referee signals for sudden death to begin, Daniel centers himself and begins to perform the kata.
Barnes backs off, looking at Daniel in complete bewilderment. Silver, thinking Daniel has simply lost it, orders Barnes to score the final point and finish Daniel. Letting his anger bubble to the surface, Barnes charges in with a lunge punch meant to take Daniel down.
But Daniel catches the punch and flips Barnes down to the ground, pulling a punch after Barnes falls, scoring a clean point himself to win the contest and successfully defend his championship. All of Silver's carefully orchestrated plans fall to ruin in that one brief second where the referee declares Daniel the second-time champion. Silver and Kreese storm off as the spectator crowd cheers wildly for Daniel. The movie ends with an overjoyed Daniel telling Miyagi to forget about bowing, and then giving his teacher and friend a hug.