Although set in Okinawa, the film was actually shot in Oahu, Hawaii. The island was chosen because of its similar climate to Japan, its large Okinawan population and the convenience of shooting on US soil.
The writers were divided between doing the storyline of Part II on Miyagi's hometown or Kreese's revenge. As a compromise, they decided to do Part II on Miyagi to give him more focus and to Part III on Kreese's revenge.
Tamlyn Tomita became great friends with Nobu McCarthy on the set of the film, effectively adopting the older actress as her mentor. Tomita was greatly affected by McCarthy's sudden death at the age of 67 in 2002 when they were making Gaijin - Ama-me Como Sou (2005) together in Brazil.
The opening scenes (Daniel in the shower, and the confrontation in the parking lot with Kreese) were in the script for The Karate Kid (1984) but contrary to urban legend never filmed. They were shot specifically for The Karate Kid Part II (1986).
Elisabeth Shue resumed her studies at Harvard shortly after filming the first movie, ending her involvement with the series. She was to have a minor role where she and Daniel break up before she travels to Europe for the summer, but the writers scrapped it. Daniel mentions her briefly in a scene with Miyagi, but other than that, she isn't seen or heard in the film.
Ralph Macchio (Daniel-san) pronounces the word "karate" in a neutral way, similar to how Mr. Miyagi says it. However, in The Karate Kid Part III (1989) he goes back using a more American pronunciation, like he did in the first movie.
Principal photography took place in Oahu, Hawaii, in the northeastern area of the island known as the "windward side". The local countryside in modern-day Okinawa had been drastically changed due to the presence of military bases, so other locations in both Japan and Hawaii were scouted as alternative filming locations. Filmmakers selected a property in Oahu that was privately owned by a retired local physician who agreed to allow a portion of the land to be used in the film. To form the Okinawan village portrayed in the film, seven authentic replicas of Okinawan houses were constructed along with more than three acres of planted crops. Fifty Okinawa-born Hawaii residents were also recruited as film extras.
Some scenes cut from the original script include a scene introducing a mysterious character named Webster Miyagi who waits for Miyagi outside the tournament building, to whom Miyagi reacts in an uncomfortable manner, and also a scene of Daniel and Ali breaking up because of Ali leaving for Europe for the summer.
When Miyagi introduces Daniel to the Miyagi family dojo, he shows him a picture of the founder of Miyagi Karate. "Miyagi Shimpo Sensei". The person in the picture is extremely similar to the founder of the modern Japanese martial art "Aikido", named "Morihei Ueshiba"
In addition to being an expert in karate and owning a construction company in Okinawa, it seems that Sato also owns and runs an escort service. When Daniel and Miyagi are getting off the plane in Okinawa, they see a sign on the wall advertising Sato's Karate Dojo. Above that sign to the left is another sign for Sato's construction company, and above the karate sign to the right is a 3rd sign advertising Sato's Escort Service.
In the scene where Mr. Miyagi is fixing Daniel's car after Ali (his girlfriend in the original film) had "redesigned his fender", he can be seen drinking a Quik chocolate milk carton. These small cartons are no longer available and have been replaced with small plastic bottles.
The scene when Daniel and Kumiko are in 1950's dance club the first song playing in that scene is "Rock Around the Clock". The Bill Haley & The Comets version was the opening music to the first two seasons of "Happy Days"(1974) which Pat Morita played "Arnold" in the third season.
The trivia items below may give away important plot points.
During the fight between Chozen and Miyagi (When Chozen is armed with the spear), Chozen strikes Miyagi on the back with the spear. This is the only time in the entire movie series someone lands a successful strike on Miyagi.
Towards the end of the village storm scene, Chozen speaks angrily in Japanese toward Daniel as he flees into the night. He says "Kono yarô! Koroshite yaru zo!". Translated: "You bastard! I'm going to kill you!"