Going against the wishes of his mentor, Mr. Miyagi (Noriyuki 'Pat' Morita), Daniel (Ralph Macchio) will defend his karate title in an All-Valley Championship match arranged by his nemesis Kreese (Martin Kove), whose karate studio folded after his star student lost the championship to Daniel. Kreese's friend, Vietnam veteran and toxic waste dumper Terry (Thomas Ian Griffith), agrees to help his old pal regain the championship trophy. Daniel's rival Mike Barnes (Sean Kanan) is known as 'the bad boy of karate,' and Daniel feels he requires more training to vanquish him.