The film begins with Huo Yuanjia fighting and defeating three Westerners: a British boxer, a Belgian lancer, and a Spanish fencer. While waiting for the fourth match to begin, Huo remembers his father Huo Endi teaching martial arts. The story is then told in an extended flashback. Watching his father fight, the young Yuanjia wants to participate, but his father is concerned about his asthma. Yuanjia sees his father in a match with Zhao, who dishonorably won by retaliating when Huo Endi held back a fatal blow. Humiliated by his father’s defeat, Huo Yuanjia vows to regain the Huo family’s honor and pride. He practices martial arts behind his father’s back. As time goes by, Huo Yuanjia defeats several opponents (including Zhao’s son) and becomes a famous martial artist in Tianjin. As he becomes successful, he grows arrogant and ruthless towards his opponents, unlike his late father who advocated showing mercy to opponents. This also leads to Huo gaining many followers and getting himself into financial trouble by spending his family’s money on drinking and partying.
When a rival martial arts master named Qin Lei injures one of his followers, Huo feels insulted and confronts Qin on his birthday, at a restaurant owned by Huo’s childhood friend, Nong Jinsun. Failing to dissuade his friend from fighting and fed up with his ruthless behavior, Jinsun ends his friendship with Huo. The confrontation escalates into a fight that ends with Qin’s death. Qin’s godson seeks vengeance and kills Huo’s mother and daughter. Huo goes to Qin’s house, where Qin’s godson admits to the murders before killing himself. Huo learns that it was his follower who had slept with Qin’s mistress, which caused Qin to beat him.
Wracked with guilt, Huo flees Tianjin and wanders aimlessly for months. He nearly drowns in a river but is saved by Granny Sun and her blind granddaughter, Yueci. They bring him back to their village. Guided by their kindness, and over the years, Huo learns the value of compassion and mercy.
In 1907, Huo returns to Tianjin and sees the changes that have taken place. He apologizes to Qin’s family and reconciles with Jinsun, now a businessman. He challenges the American wrestler, Hercules O’Brien. Prior to the match, Huo requests that he and Hercules fight with honor and civility. Taking advantage of the language barrier, the Announcer deliberately mistranslates Huo’s request to “He wants to kick your butt”. During their match, Huo saves O’Brien from being impaled on some nails and wins his gratitude. The match ends with O’Brien happily naming Huo the victor. Huo’s fame spreads with successive bouts against other foreign fighters. In 1909, with funding from Jinsun, he founds Chin Woo Athletic Association in Shanghai.
The members of the foreign chamber of commerce fear that Huo’s victories might fan anti-foreign sentiments among the Chinese people, thus becoming a disadvantage to them. They propose a match between Huo and four foreign champions. Huo takes up the challenge, even though he will have to fight four bouts in a row. Before the matches, Huo meets the Japanese champion Tanaka for tea and strikes up a friendship.
The film then returns to the competition shown in the opening scenes. On September 14, 1910, Huo faces Tanaka after defeating the European challengers. In the first round, they fight with their weapons of choice. Huo uses a sanjiegun while Tanaka uses a katana. In the heat of the fight, they accidentally exchange weapons. However, Huo is able to handle the katana proficiently, while Tanaka fumbles with the sanjiegun. Huo offers to exchange weapons with Tanaka, and the first round ends in a draw. Before the next round, Huo unknowingly drinks tea poisoned by the members of the foreign chamber of commerce. In the second round involving unarmed combat, Huo has difficulty breathing and begins to lose his strength. He collapses and starts coughing blood as a result of arsenic poisoning. Tanaka and Huo’s supporters demand that the match be halted and postponed, but Huo wishes to continue as he is going to die anyway. Huo is overwhelmed by Tanaka but manages to deliver a final blow to Tanaka’s chest, using the same technique that killed Qin. He then collapses. Tanaka, aware that he would have died had Huo used more force, declares Huo the victor as Huo dies.
In the epilogue, Huo’s spirit practices Wushu on a field while Yueci observes him. Huo turns to her and smiles, indicating a lover’s reconciliation.