Picking up immediately after the events of the second film, Daniel (Ralph Macchio) and Mr. Miyagi (Pat Morita) return from Okinawa to find that their apartment building is being demolished. With no home and no job, Daniel uses his college fund to help Miyagi open a bonsai tree shop—a dream Miyagi has held for years.

It is an ugly, unsatisfying victory. But that is the point. Part III argues that fame and glory are illusions. Daniel wins by refusing to play the game. He walks away from karate. For a 1989 action movie, this was a radical, anti-climactic ending. Audiences hated it. Time has proven it was the only honest ending possible.