Lee is a Shaolin martial artist from Hong Kong who possesses great philosophical insight into martial arts as well as physical prowess. He receives an invitation to a martial arts competition on an island organised by the mysterious Han. Lee learns from his Sifu (master) that Han was also once a Shaolin student, but had been expelled from their order for abusing their code of conduct.

A man called Braithwaite from an international intelligence organization approaches Lee and asks for his help in an undercover mission. Han is suspected to be involved in illegal drugs and prostitution dealings, but since part of Han's island is beyond international jurisdiction, they are unable to conduct any formal investigations. Han runs a martial arts school on his island to recruit talents to serve him and tests a secret drug formula on his servant girls, as well as holding his tournament every three years. Lee is the ideal candidate for the mission as his fighting skills are valuable since Han disallows firearms on the island. Before leaving, Lee learns from his father that Han's henchman O'Hara had caused the death of his elder sister years ago.

Lee arrives on Han's island and receives a warm reception. Joining him are other competitors - Roper, a white American playboy-gambler on the run from the mob; Williams, a black American activist on the run from the law after fighting two white policemen in Los Angeles. Roper and Williams defeat their respective opponents in the competition held the following morning. That night, Lee begins searching the island for evidence and finds a secret entrance to an underground base. He runs into Han's guards but manages to take them down before they could identify him. He is seen by Williams, who is taking a stroll, and Williams is seen by a guard and reported to Han.

The next day, Han warns the competitors about wandering out of their rooms at night. He punishes his guards for failure in their duties and the guards meet their horrible ends at the hands of the sadistic Bolo, Han's chief bodyguard. Moments later, Lee is called to his first match and his opponent turns out to be O'Hara. Lee defeats O'Hara and is forced to kill him after O'Hara attempts to attack him using broken glass bottles. Han is disgraced by O'Hara's dishonourable actions and calls it a day. He asks Williams to meet him later and accuses Williams of attacking his guards the previous night. Williams denies it and Han kills him after a brief fight.

Han takes Roper on a tour of his underground base and invites him to be his representative for his operations in the United States. When questioned, Han shows Roper the mutilated corpse of Williams, hinting that Roper will face the same fate if he refuses to cooperate with him. The same night, Lee breaks into the underground base and gathers sufficient evidence to warrant Han's arrest, but sets off the alarm unknowingly while using the radio transmitter to contact Braithwaite. He fights with several of Han's guards during his escape but is eventually lured into a trap and captured.

The next morning, Han asks Roper to fight Lee as a test of his loyalty. Roper refuses and Han sends him to fight Bolo instead. Roper emerges victorious and the infuriated Han orders his men to kill both Lee and Roper. Despite being helplessly outnumbered, Lee and Roper manage to hold off the enemy until the captives in Han's underground prison break free and join their side to even the odds. Amidst the chaos, Han attempts to sneak away but Lee spots him and follows him. Han is killed by Lee after a spectacular fight, on his own spear. When Lee returns to Roper, he sees that most of Han's men have been defeated and rounded up. They exchange thumbs-up just as military choppers arrive in response to the distress call.