In the spirit realm, Oogway fights against a bull adversary named Kai, who has defeated all the other kung fu masters in the realm and taken their chi. Oogway too is ensnared and has his chi stolen, but warns Kai that the Dragon Warrior, Po, will stop him. Kai takes this as a challenge to steal the Dragon Warrior’s chi and returns to the mortal realm.
Meanwhile, Master Shifu announces his retirement from teaching and passes the role of teacher to Po. An initially excited Po realizes that teaching kung fu is not as easy as he thought, and the Furious Five are injured as a result. Po is demoralized because of his failure, but Shifu advises Po that instead of trying to be a teacher, he should try to be himself. Po returns home where he meets a panda, Li Shan, whom they both realize is his long-lost biological father. They quickly bond with each other, much to the jealousy of Po’s adoptive father, Mr. Ping.
After introducing Li to Shifu and his friends, Po and the Five defend the Valley of Peace from jade zombies that Kai has created from the chi of past kung fu masters. The team learns through research that Oogway and Kai were once brothers-in-arms. After Oogway was injured in battle, Kai carried him to a village of pandas who healed him with their mastery of chi. The pandas then taught Oogway how to utilize chi to help others. Kai on the other hand wanted all the power for himself and tried to steal the panda’s chi, forcing Oogway to banish him to the spirit realm. It then reveals that in order to defeat Kai, Po must learn to master the use of chi himself. Li offers to teach him by taking him to his secret panda village. Po and Li travel to the village while Shifu and the Furious Five stay behind to deal with Kai; Mr. Ping follows the pandas, worried that he will lose Po’s affections to Li. Although Po is eager to learn chi, Li tells him he must first learn the relaxed life of a panda in the village.