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, falls asleep, 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 he takes his belt and 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, he 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.
When Fuzzy calls SpongeBob a "Kung Fu charlatan," it is a jab at Kung Fu Panda: Legends of Awesomeness, which was a recent show on Nickelodeon around the time when this episode premiered. It also makes sense since Karate is a Japanese martial art, while Kung Fu is a Chinese martial art.
Running Gag: When someone's belt is taken off, their pants fall down (apart from Sandy).
It's odd how Mr. Krabs didn't appear in this episode despite the noise and damage going on inside his restaurant. In other episodes, he usually runs out of his office to what all the commotion is about.
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.