Jet Li portrays the life of martial arts master Huo Yuanjia. The plot differs greatly from the actual life of Huo Yuanjia.

The movie starts off with Huo Yuanjia fighting 3 Westerners: a boxer, a spearfighter and a fencer. Huo Yuanjia beats them all, and makes it his habit to bow to the opponent. Just as he is about to fight Anno Tanaka, the final contestant, Huo Yuanjia has a flashback.

The story flashes back to when Huo Yuanjia was a small boy. His father, Huo Endi, was a great fighter but did not want his asthmatic son to follow in his footsteps, and hence refused to teach Yuanjia martial arts. Huo secretly watched his father's training and taught himself how to fight.

The young Yuanjia then witnesses his father "losing" a Lei tai match; in actuality, his father struck the winning blow of the match, because he delivered a fatal technique which he mercifully pulled short so that his opponent would not be killed. However, his opponent dishonorably struck back after Huo Endi's winning blow, causing Huo Endi to "lose" the match when he is knocked off the stage. Yuanjia is taunted by the son of the man who defeated his father and he steps up to defend the Huo family name. Yuanjia gets beaten up by the boy and he swears never to lose again.

As the years pass, Yuanjia grows into a powerful fighter, winning fight after fight on the Lei tai until he becomes known as one of the greatest fighters in Tianjin, China. However, as his success grows, he becomes arrogant and increasingly ruthless, unlike his late father. When a rival martial arts master named Qin Lei (Master Chin in the US version) apparently injures one of Huo's followers, Huo forces Qin to fight him to the death during Qin's birthday celebration. Yuanjia's businessman friend, Nong Jinsun, urges him to settle the matter later, but Yuanjia refuses, insulting Nong. After much effort, during which the fighters demolish a restaurant, Huo—unlike his father who had previously held off during the Lei tai match—kills Qin with a fatal blow. However, when he returns home, he realizes that his mother and daughter (Jade in the US version) have been killed in revenge. Guided by fury, he goes to Qin's home and finds Qin's Godson, who admits to slaughtering Huo's family, and that he alone was responsible. Qin's Godson then commits suicide before Huo can kill him.As he leaves, his pupils approach, and force the pupil that was injured by Qin to tell Huo that the reason Qin attacked his pupil was because the pupil had slept with Qin's concubine (in the American version he insults Qin's mistress). Crazed with grief and shame, Huo flees Tianjin and wanders aimlessly for many miles, no longer caring about himself. A disheveled, greying wanderer, he nearly drowns in a river, but is saved by Granny Sun (Grandma in the US version) and her blind granddaughter, Yueci (Moon in the US version). They bring him back to their village and guided by their simple acts of kindness, Huo begins to learn the value of kindness and mercy.

In 1907, Huo Yuanjia returns to a very different Tianjin than the one he had left. No longer a comfortable rural village, it is now a bustling city, crowded with foreign troops and merchants. There, he makes peace with his past—visiting the graves of his family and apologizing for his faults, and paying his respects to the family of Master Qin.

He then reconciles with Nong Jinsun and challenges the American fighter, Hercules O'Brien, who was making headlines defeating Chinese fighters and dismissing them as the 'Weak men of the East'. To the astonishment of the foreigners, Huo not only wins the fight, but the admiration of O'Brien in the process by saving O'Brien's life. Huo Yuanjia's fame begins to spread with successive challenges with other foreign fighters, and with funding from Nong Jinsun, he sets up Jing Wu Men, a martial arts school in Shanghai.

The members of the foreign Chambers of Commerce fear that Huo Yuanjia's victory will fan anti-western sentiments in the Chinese people and lead to revolts, so they seek to humiliate him. They challenge him to a match in which he will take on four foreign champions in a single evening: a British boxer, a German lancer, a Spanish fencer, and a Japanese martial artist. Though Jinsun urges Huo to refuse such an unfair challenge, Huo decides to accept, adding that afterwards, he intends to take a break and visit Granny and Yueci. He also accepts an invitation to join the Japanese challenger, Anno Tanaka, for tea. While there, they have an important debate about the value of the martial arts. Tanaka believes the goal of a martial artist is to defeat his opponent, but Huo impresses Tanaka by successfully arguing that the goal of studying martial arts is self-improvement, and that challenge matches are important not because of who wins or loses but because they provide a way for a practitioner to gauge his progress and can act as a focal point in his training. The two fighters leave with a friendly respect for each other, looking almost as if the two were actually friends.

The match was now found to have taken place on September 14, 1910. The flashback is over. Huo Yuanjia faces Tanaka in a titanic battle. In the first round, they fight with their weapons of choice. Yuanjia uses a Three section staff and Tanaka uses a Katana. In the middle of the round, each fighter manages to disarm the other and they end up exchanging weapons, whereupon it is clear that Tanaka has little to no experience with the three section staff. After they return each other their chosen weapon, the first round ends in a draw. However, both Huo and Tanaka have also formed a silent friendship based on mutual respect.

Before the second round, Huo drinks from a teacup that was switched unseen with his teacup, while he was fighting in the first round. In the second round, to be fought without weapons, Huo has difficulty breathing, loses his strength, and starts vomiting blood (the teacup he drank from was poisoned with arsenic). Tanaka and Huo's students immediately demand that the fight be stopped, but Huo replies that they might as well finish it since he will die regardless.

In his weakened state, Huo is no match for Tanaka but sees an opening to seize victory by delivering the same fatal technique that he had used to defeat and kill Master Qin. However, at the last second, he pulls the strike, letting it land without any power behind it, just like his father did in the start of the movie. As Huo collapses, Tanaka realizes both Huo's mastery and his mercy and helps Huo back to his feet, raises his arm and declares him the victor. The crowd from all sides cheer as they call out Huo's name.

When the furious Japanese diplomat confronts Tanaka, accuses him of throwing their victory away, and calls him a disgrace to Japan. Tanaka, perhaps knowing that he was the one who was behind the poisoning, angrily slams him against a pillar and repeats that Huo won the match; end of story. The scene is left off with the crowd gathering around what is depicted to be Huo's corpse.

The movie ends with a scene of Huo practicing his Wushu on a flower-covered hill, with Yueci watching from a distance. Huo turns to see Yueci, and she hurries towards him. The film ends with the two meeting eyes, presumably for the first time ever.