Tien Lung, the best fighter at the Ching Te martial arts school gets into a fight with the local Hook Gang at a restaurant where Tien Lung and his friends are dining. The Hook Gang are part of a local opium-dealing and prostitution ring run by a man named Chao and are rivals of the Ching Te school. The Ching Te school is the most prominent martial arts academy in town and controls the local clothes-dyeing and brick factories. In a quick battle, Tien and his friends easily defeat the Hook gang both in the restaurant and again later in the valley where they have a battle royale.
The beaten Hook gang members return to Chao and tell him how Tien and the Ching Te school beat them for no reason. More importantly, the Hook gang lies and tells Chao that Tien had disrespected their group. This infuriates Chao enough to go to the Ching Te dojo and challenge Tien's master, Hang Tui, to a fight. Hang Tui quickly defeats Chao, leaving him even more humiliated.
Chao plans his revenge by hiring a group of mercenary martial artists from Shanghai. This group consists of two karate experts and their teacher, a Judo master, a Taekwondo expert, two Thai boxing fighters, a Yoga expert, and two mystic Tibetan lamas (who are later revealed in the sequel to be students of an Imperial Assassin). With this group, Chao easily destroys the Ching Te school and all of their businesses, leaving everyone dead except for Tien Lung who loses his right arm. Tien Lung vows revenge and begins his training to destroy anyone and everyone who stands in his way.