The episode starts with SpongeBob walking over to Sandy's place to show her a new karate move. He arrives and sees her with someone else, which makes him think she is being attacked; so SpongeBob walks in to defend her, but gets stopped by the stranger's smelly feet. Sandy introduces SpongeBob to the stranger; Fuzzy Acorns, the greatest karate master ever. Sandy tells him that Fuzzy is here to see her karate skills. She is trying to earn a blacker belt, the highest belt in karate. SpongeBob wishes he had a belt, which Fuzzy overhears and tells SpongeBob that if he wants a belt, he has to earn it. He offers to train SpongeBob so that he can earn a belt. The sponge tries all the tests that Fuzzy gives him, but he fails. Now fed up, Fuzzy tells SpongeBob that he will face against Sandy tomorrow. If SpongeBob passes, he will get a belt, otherwise, he gets nothing.
SpongeBob runs home to train himself overnight and then comes back,tired and unrested to spar with Sandy. He does very poorly and sleep, and is sad. Fuzzy said if he lasted longer, he would have rewarded SpongeBob with the clear belt, but says that SpongeBob is not even worthy enough to wear the belt that keeps his pants up, so his pants fall. He also takes Sandy's black belt away for wasting his time with SpongeBob. He leaves and Sandy tries to talk Fuzzy into giving SpongeBob another chance, but Fuzzy never gives two chances and wishes to find food. Suddenly, Sandy then gets an idea: She convinces Fuzzy to come to the Krusty Krab to see SpongeBob in action, so he goes (without an air helmet) to see him. He watches, and is still not impressed by SpongeBob's agility. He is only amazed when SpongeBob manages to slice Sandy's burger in twelfths with his hand. Fuzzy starts to think SpongeBob is more skilled than he thought, so he tries to attack SpongeBob, but SpongeBob is so busy that he doesn't notice Fuzzy sneaking up on him and dodges Fuzzy. Fuzzy decides he has had enough and tries to finish it, but SpongeBob bends over to get a dropped ketchup bottle, dodging Fuzzy's kick, sending him over to the door of the Krusty Krab. He looks terrible, but Sandy says Fuzzy just needs an air helmet. She gives him one, and he admits that SpongeBob is a worthy karate fighter, and so, gives SpongeBob a black belt. As well, he gives Sandy his blacker belt for proving that SpongeBob does know karate. Without his belt, Fuzzy's pants fall down, revealing his underwear. The whole crowd cheers with laughter.
( ‣ ) Associated production music
( • ) Original music
( ◦ ) SpongeBob music
•Exotic Sting - Nicolas Carr [title card] ‣ ? ["Sandy's in trouble!"] ‣ ? ["Try again, Sandy."] ‣ ? [SpongeBob fails to attack] ‣ ? ["...the smell of death."] ‣ ? [blacker belt] ‣ ? ["I'm here to separate the wheat from the chaff."] ‣ ? [Sandy explains what Fuzzy is trying to say] ‣ ? [first test] ‣ ? [second test] ‣ ? ["We shall settle this on the battlefield tomorrow."] ‣ ? [training montage] •Lap Steel - Nicolas Carr [early the next morning...] ‣Drama Link (d) - Hubert Clifford ["The match!"] •Sponge Monger - Sage Guyton, Jeremy Wakefield [Gary opens the door] ‣ ? ["Where is the soft one?"] ‣Steel Licks (d) - Jeremy Wakefield [SpongeBob arrives] ‣ ? ["Let the match begin!"] ‣ ? [Sandy fights SpongeBob] ‣ ? [SpongeBob falls asleep] ‣ ? ["Too bad your opponent didn't put up a fight."] ‣Tympup B - Sammy Burdson, John Charles Fiddy [Fuzzy removes SpongeBob's belt] •Hawaiian Sting - Nicolas Carr [Fuzzy removes SpongeBob's belt] ‣Hawaiian Cocktail - Richard Myhill [Fuzzy removes Sandy's belt] ‣ ? ["Silence! No more chances."] •Harp Ding - Nicolas Carr ["That's it!"] • ? - Michael Bolger, Nicolas Carr [at the Krusty Krab] •Vibe Sting - Nicolas Carr ["Stick to what I'm good at?"] •Exotic Sting - Nicolas Carr [SpongeBob making Krabby Patties] ‣ ? [SpongeBob serving patties] ‣ ? ["What?!"] ‣ ? [Fuzzy jumps out at SpongeBob] ‣ ? ["You little Krabby Patties are so cute."] •Steel Sting - Jeremy Wakefield ["It's the onions."] ‣ ? ["He's on the offensive."] ‣ ? ["You brought me to the dance, but the universe is cutting in."] •Vibe Sting - Nicolas Carr ["Huh?"] ‣ ? ["Smell the vibrations!"] ‣Dramatic Impact 6 - Ivor Slaney ["Fuzzy!"] ‣ ? ["I was wrong about you, SpongeBob."] ‣ ? [Fuzzy gives SpongeBob his karate belt] •Lap Steel - Nicolas Carr ["You look terrible!"] ‣Vibe Sting - Richard Myhill [Sandy gives Fuzzy an air helmet] ‣ ? ["No more talk, only do!"] •Exotic Sting - Nicolas Carr [Fuzzy gives Sandy the blacker belt] ‣Tympup B - Sammy Burdson, John Charles Fiddy [Fuzzy's pants fall down] •Hawaiian Sting - Nicolas Carr [Fuzzy's pants fall down] ‣Steel Sting (b) - Jeremy Wakefield [ending]
When Fuzzy calls SpongeBob a "Kung Fu charlatan", it is a playful jab against Kung Fu Panda, which had recently debuted on Nickelodeon. It also makes sense since Karate is a Japanese martial art, while Kung Fu is a Chinese martial art.
The episode title is a reference name to Way of the Dragon, starring Bruce Lee.
Fuzzy constantly replies whenever someone questions him, "No try, only do!". This is a reference to Yoda's quote: "Do or do not. There is no try." when he is training Luke in Star Wars.
Fuzzy may be a refrence to Master Splinter as they are masters in martial arts, and for the most part rodents.
The opening soundtrack is similar to the ones from Naruto in certain scenes when Naruto and his friends are about to fight the enemy or patrol around forests, just with the soundtrack a bit more Asian.
SpongeBob actually was complimented by Fuzzy when he said "a Kung Fu charlatan" because Kung Fu is actually stronger than karate.