Following the events of Rise of the Sea Dragon, Dee Renjie (Mark Chao) was appointed to head the Court of Judicature and Revision (Da Li Si) and conferred the prestigious “Dragon Sword” by Emperor Gaozong (Chien Sheng). Hence, he became a threat to Empress Wu Zetian’s (Carina Lau) quest for ultimate authority. Empress Wu assigns the head of the royal guard, Yuchi Zhenjin (Feng Shaofeng) to lead a group of mercenary sorcerers to steal the sword from Dee. Yuchi begrudgingly agrees under the condition that Dee must not be harmed or punished; however, Wu has secretly assigned the sorcerers to kill Dee. Knowing that Wu would try to eliminate him, Dee has hidden the mace and later on goes into hiding himself, to foil her plans and uncover the conspiracy against him.
Dee tasks Yuchi with finding the hidden Dragon Sword, whereby he encounters one of the sorcerers, whom he kills in battle. Since Dee cannot be found, Wu fires him from his position as head of the Da Li Si and declares him a wanted criminal. After Yuchi returns the Dragon Sword, she promotes the leader of the sorcerers, San Zang (Xian Gao), to the imperial court. While the latter demonstrates his powers, a dragon statue seemingly comes to life, killing two of the other sorcerers and producing a mass panic. Wu blames Yuchi for promoting Zang and killing several officers and has him arrested. Dee enters the palace in disguise, frees Yuchi and concludes that the living dragon was in fact a mass illusion, and that the true culprit had killed Zang beforehand and took his place. Furthermore, the two seemingly dead sorcerers were also part of the scheme and faked their deaths.
It turns out that the empress was controlled by the adversaries with an illusion and false promises of absolute power, and that the true culprits are a vengeful cult of Indian sorcerers, the “Wind Warriors”, whom the previous emperor had used to come to power but killed and mutilated afterwards. Dee has the royal family hidden and enlists the help of Shatuo Zong (Lin Gengxin) and the defected sorcerer Moon Water (Sandra Ma) to convince the powerful Zen Master Yuan Ce (Ethan Juan) in combating the army of illusionists and their leader, “Faceless Monster” (Wei Jia). In the ensuing battle at the Da Li Si, the powerful illusions of Faceless Monster prove too strong for Dee and his men, until Yuan Ce appears and defeats the leader of the Wind Warriors. Afterwards, Dee and Yuchi are reinstated in their positions.