The story picks up right where the original left off. When he realizes there is no match for his supreme kung fu, the legendary swordsman Wan Fei Yeung decides to retire from the martial world for a quieter life. He meets two good kids, Luk Dan and Siu Chi, by chance, and later he gives his power to the fatally-wounded Siu Chi to save his life. Unfortunately, Luk Dan chooses a path of no return when he practices some powerful but evil kung fu so as to seek vengeance for his persecuted family. Luk Dan becomes a malicious madman. How can Siu Chi stop Luk Dan from terrorizing the martial world?