Daniel LaRusso (RALPH MACCHIO), a teenager, moves with his mother Lucille (RANDEE HELLER) from New Jersey to Southern California for her new job with a computer company, and isn't happy with it. For one, he doesn't think he'll know anyone there and was more comfortable in New Jersey rather than what he declares are the "rules" that California lives by. He meets Freddy Fernandez (ISRAEL JUARBE), who's merely a conduit for Daniel to meet Ali (ELISABETH SHUE) at the beach, as well as her ex-boyfriend, Johnny Lawrence (WILLIAM ZABKA), who doesn't like Daniel talking to her and apparently getting to know her, especially when he's trying to get back together with her, though that desire isn't mutual.
Johnny and his gang, who also practice karate together in a dojo led by a ruthless instructor, John Kreese (MARTIN KOVE), seek to make Daniel's life more difficult than he already finds it, causing him to get into a bicycle accident and later beating him up in front of his apartment complex, before Mr. Miyagi (NORIYUKI "PAT" MORITA) jumps over the fence behind the group and defeats them all.
Besides being the handyman for Daniel's building, Mr. Miyagi is also skilled in karate and when Mr. Miyagi makes the offer in the dojo for Daniel to face down Johnny in an upcoming tournament, he proceeds to teach Daniel everything he needs to know, including that one learns karate not to fight, but so that it's not necessary to fight.