The Karate Kid Part III picks up where the previous film left off, with Daniel and Mr. Miyagi celebrating their victory at the All-Valley Karate Tournament. However, their peaceful existence is soon interrupted when John Kreese, the owner of the Cobra Kai karate school, shows up at their doorstep. Kreese's life is in shambles after the loss, and he is desperate for revenge.
Kreese travels to a friend in Vietnam, Terry Silver, who is a wealthy businessman and martial arts expert. Terry becomes Kreese's mentor and promises to help him get revenge on Daniel and Mr. Miyagi. Together, they plot to destroy Mr. Miyagi's bonsai tree shop and to reopen the Cobra Kai karate school.
Meanwhile, Daniel is struggling to balance his training with his relationship with his love interest, Jessica. He also finds himself overwhelmed with the responsibilities of running Mr. Miyagi's business. Despite Mr. Miyagi's objections, Daniel decides to compete in the tournament again.
Terry enlists Mike Barnes, a ruthless karate fighter, to compete against Daniel in the tournament. Barnes and his cronies harass and intimidate Daniel, making it difficult for him to focus on his training. However, with the help of Mr. Miyagi, Daniel eventually overcomes his obstacles and makes it to the final round.
In the final round, it is revealed that Terry has been coaching Barnes to fight unfairly and hurt Daniel. Recognizing the immorality of his actions, Kreese turns on Terry and helps Daniel defeat Barnes. In the end, Kreese realizes the error of his ways and reconciles with Daniel and Mr. Miyagi, and the Cobra Kai karate school is shut down permanently.
The Karate Kid Part III is a tale of redemption and forgiveness, where past enemies become friends and where the true meaning of karate is realized.