Twelve-year-old Dre Parker and his

Twelve-year-old Dre Parker and his mother Sherry move from Detroit to Beijing after getting a job transfer at a car factory. After a day in a park, Dre develops a crush on a young violinist, Meiying, who reciprocates his attention, but a 14-year old boy named Cheng, a rebellious kung fu prodigy whose family is close to Meiying's, attempts to keep them apart by beating Dre, and later bullies him at school. During an attack, the maintenance man Mr. Han comes to Dre's aid, revealing himself as a kung fu master.

After Han mends Dre's injuries using fire cupping, Dre asks if Mr. Han could teach him kung fu. Han refuses, but meets Cheng's teacher, Master Li, to make peace. Li, who teaches his students to show no mercy to their enemies, challenges Dre to a fight with Cheng. Han instead proposes that Dre compete against Li's students at an open kung fu tournament, and also requests the students leave Dre alone to train. Li accepts the offer, but tells Han that if Dre does not show up during the tournament he will personally bring pain to Han and Dre.

Han promises to teach Dre "real" kung fu. Han begins training Dre, by emphasing movements that apply to life in general, and that serenity and maturity, not punches and power, are the true keys to mastering the martial arts. He teaches this by having Dre go through various actions with his jacket, which teaches Dre muscle memory moves. Han then takes Dre to a temple in the Wudang Mountains where he trained with his father, and Dre witnesses a woman making a cobra reflect her movements and Han allows Dre to drink the water from a magical well.

As Dre's friendship with Meiying continues, Dre persuades Meiying to cut school for a day of fun, but when she is nearly late for her violin audition which was brought forward a day without their knowledge, her parents deem him a bad influence and forbid her from spending more time with him.

During the course of their training, Han gives Dre a day off. Dre goes to Han that night and finds Han, apparently drunk, smashing a car he was working on. Han tells Dre that he crashed the same car years ago. His wife and ten-year old son were with him and died in the car crash. Han fixes the car every year but smashes it to remind himself of what happened. Dre shows Han the kung fu techniques he has learned while his mother arrives and watches him. Dre works much harder in his training to help Han forget about the incident. Han assists Dre in reading a note of apology to Meiying's father in Chinese; he accepts and promises that Meiying attend the tournament to support Dre.

At the tournament, the under-confident Dre is slow to achieve parity with his opponents, but soon begins beating them and advances to the semifinals, as does Cheng, who violently finishes off his opponents. Dre comes up against Liang, one of Li's more sympathetic students, who (under Li's goading) severely hurts Dre's leg and Liang is disqualified as a result, while Dre is taken to the infirmary.

Despite Han's insistence that he has earned respect for his performance, Dre convinces Han to mend his leg by using fire cupping in order to continue. Dre returns to the arena, facing Cheng. Dre delivers impressive blows, but Cheng counters with a strike to Dre's leg. Dre struggles to get up, and attempts the reflection technique to manipulate Cheng into changing his attack stance. Cheng begins reflecting Dre's movements and it goads him into charging Dre, but Dre flips and catches Cheng with a kick to his head, winning the tournament along with the respect of Cheng and his classmates. Cheng, instead of the presenter, awards Dre the trophy, and the Fighting Dragon students bow to Mr. Han, accepting him as their new master, much to Li's dismay.