The film begins with a fourteen-year-old Waterbender named Katara, and her older fifteen-year-old warrior brother, Sokka from the Southern Water Tribe, unfreezing an Iceberg with a twelve-year-old boy Aang, and a flying bison named Appa, trapped inside. This attracts the attention of Zuko, the Prince of the Fire Nation who was exiled by his father: The current Fire Lord Ozai. Arriving to Southern Water Tribe, Zuko demands the elderly under the impression that Avatar is an old person until Aang is found. Aang surrenders himself to Zuko as long as he agrees to leave the village alone. Aboard Zuko's ship, Aang is at Zuko's mercy, but he dares the two escorts that he could take them both in a fight with both of his hands tied behind his back. Eventually he manages to maneuver away from the guards before Katara and Sokka arrive on Appa, making their escape. Aang and friends visit the Southern Air Temple where the Avatar learns that he was in the ice for a century and the Fire Nation wiped out everyone he knew there, entering the Avatar State and revealing to the world that the Avatar has returned via spiritually significant statues begin to glow white, just like Aang's eyes and tattoos. It was there Aang meets up with the only known remaining "flying lemur", naming it "Momo" as it joins Aang's group. Meanwhile, Commander Zhao invites Prince Zuko and Iroh for lunch, only to humiliate Zuko in front of his men.
Arriving in a small Earth Kingdom town that is controlled by the Fire Nation, Aang's group are arrested while helping a boy named Haru there. They then incite a rebellion with reminding the disgruntled Earthbenders that earth was given to them through the air ducts. Soon after, Katara finds a Waterbending scroll that she uses to perfect her innate Waterbending abilities while helping Aang master Waterbending as they make their way to the Northern Water Tribe and liberate more Earth Kingdom villages in the process. During a side track to the Northern Air Temple on his own, Aang is betrayed by a peasant and captured by a group of Fire Nation Yuu Yan archers, commanded by Zhao. However, a masked marauder, the "Blue Spirit", helps Aang escape from his imprisonment. Aware that Zuko is the "Blue Spirit," Zhao arranges the prince's demise. But Zuko survives the attempt on his life and, with Iroh's help, sneaks aboard Zhao's lead ship as his fleet departs for the Northern Water Tribe to execute the plan he and Ozai set up with the scrolls from the Library detailing the spirits there.
Upon arriving, Aang's group is welcomed warmly by the citizens of the Northern Water Tribe. Sokka falls in love with Princess Yue, while Aang and Katara master their waterbending skills under Pakku. Once the Fire Nation armada arrives, Zhao begins his attack while Zuko infiltrates the tribe on his own, capturing Aang while he entered the spirit world to find the dragon spirit to give him the wisdom to defeat the Fire Nation. Coming to his senses, Aang battles Zuko before Katara freezes him. As the battles escalates, Iroh watches Zhao slay the moon spirit Tui, causing the Waterbenders to lose their all of their powers and abilities to Waterbend. However, Yue, who was imbued with some of the energy of the Moon Spirit when she was a newborn, sacrifices her life to revive the Moon Spirit. As Zhao is drowned by Northern Waterbenders after Zuko and Iroh leave him to his fate, Aang uses the ocean to drive the armada back. Aang now fully embraces his destiny as the Avatar and prepares to continue their struggle against Ozai. When news of Zhao's death and Iroh's betrayal reaches him, Ozai appoints his daughter Azula to capture both her uncle and older brother while hindering the Avatar in any way before Sozin's Comet makes its return within three years time.
