Thirty four years after losing to Daniel LaRusso in the 1984 All Valley Under-18 Karate Championship, Johnny Lawrence struggles to make a living as a handyman while Daniel runs a successful car dealership chain in the San Fernando Valley. One night, Johnny saves his teenage neighbor Miguel Diaz from a group of bullies at a nearby strip mall before he is arrested for assaulting them. After being released from police custody, Johnny gets a visit from his wealthy, bullying stepfather, Sid Weinberg. Sid gives Johnny a check and officially disowns him. Drunk, Johnny drives to the All Valley Sports Arena and relives his last encounter with his former sensei John Kreese when his car is wrecked in a hit-and-run incident. Despite his protests, his car is towed to one of Daniel's dealerships for repairs. The next day he goes to the dealership in an attempt to take the car back, only to run into Daniel. The meeting not only reignites Johnny's smouldering enmity for Daniel but he also finds out that Daniel's daughter Samantha was one of the passengers in the hit-and-run incident. He returns home and tells Miguel that he will be his sensei and opens his own Cobra Kai dojo with the money he received from Sid.