While exploring an abandoned Fire Nation warship, Aang realizes he has been in suspended animation for a century, and accidentally sets off a trap warning the Fire Nation of his presence on their ship. Aang and Katara come back from the ship to be greeted by many angry faces. Because the flare had been set off, the safety of the village has become endangered. The villagers, after angry words spoken by Sokka, decide to banish Aang from the Southern Water Tribe. Katara becomes outraged with the decision, and at first decides to leave as well so that she can follow her dream of becoming a Waterbender. However, after only a small amount of persuasion by Sokka and Gran Gran, she sadly decides to stay with her family. Aang and Appa ride off together, setting course for the Southern Air Temple where Aang previously lived. Katara is quite frustrated that they have banished Aang and snaps at her grandmother. Sokka quickly readies the young children for combat with the Fire Nation. Meanwhile, Aang and Appa, taking a break from their so far young journey, rest on an ice formation. Aang spots Zuko's ship approaching the village and quickly decides to help defend his new friends, leaving a dozing Appa to continue resting in the ice formation.
Sokka and Zuko individually prepare for the rapidly approaching encounter. Zuko dons a traditional Fire Nation soldier's uniform and helmet, while Sokka readies his weapons and applies black, grey, and white warpaint to his face.
Zuko's ship quickly arrives at the Water Tribe village, its mere approaching collapsing Sokka's makeshift walls and towers. Still, Sokka stands bravely, only balking in order to avoid the ramp that descends from the ship. Zuko quickly descends, accompanied by only a very small number of soldiers, and Sokka charges him. The more experienced Zuko requires only his bare hands to counter Sokka's primitive weaponry, and he is almost dismissive of his presence at first. Zuko demands the location of The Avatar, expecting to find an old man somewhere in the village. He grabs Gran Gran threateningly, and Sokka attacks Zuko again. The two fight briefly, and once again Zuko only needs to use his bare hands to render Sokka's attacks useless. Sokka only manages a lucky hit when his boomerang strikes the back of Zuko's helmet, angering the prince to the extent that he prepares to use Firebending on the unfortunate villagers.
Aang arrives at the nick of time, riding on a penguin, and knocks Zuko off his feet. Zuko is shocked as he realizes that the Avatar is merely a twelve-year-old boy, rather than the ancient master he was expecting. As he voices this revelation, the Water Tribe villagers express their own surprise. Zuko quickly regains his focus and wastes no time in launching a series of fire blasts at Aang. Aang is able to defend himself with Airbending, but soon decides to stop the battle when he realizes that Zuko's attacks would inevitably strike the children he has befriended. Aang surrenders, and Zuko's soldiers take him aboard as a prisoner before setting off for the Fire Nation.
Katara and Sokka, now with the knowledge that Aang is the Avatar, quickly move to save him. They ready a canoe to chase after Zuko's ship, and before embarking receive farewells and encouragement from their grandmother. The siblings realize that their small boat has no chance of catching the larger, faster Fire Nation ship, until Appa arrives to give them a ride.
On Zuko's ship, the guards escort Aang to the prison hold, while Prince Zuko entrusts his Uncle Iroh with taking the boy's glider to his personal quarters. Iroh, true to his nature, immediately and casually passes the job on to the nearest guard. While being taken to the prison hold, Aang, with his hands tied, uses his powerful breath to knock out both of his escorts. He then proceeds to rapidly run through the inners of the ship, trying to retrieve his staff. One of the escorts recovers and sounds the alarm.
Katara and Sokka, having found Appa and started after Zuko's ship, slowly make progress as Appa swims through the water. Sokka eventually remembers Aang's command phrase for Appa to take off, "Yip yip," and the bison quickly launches into the sky, moving much more quickly. For a brief moment, Sokka loses his previous cynical and grumpy attitude in a fit of excitement, a moment that passes when he realizes Katara is watching his rare behavior. Aang continues to run through the ship's many hallways, in the process displaying tremendous speed and agility and also cutting his bonds on the helmet of one of the guards. He looks through several rooms before finally discovering Zuko's personal quarters. He runs in to claim his staff, just as a waiting Zuko slams the door shut to cut off his escape route. Zuko launches a number of attacks in hopes of incapacitating Aang, but the Airbender easily avoids them before finally launching a short series of powerful gusts that slam Zuko against the room's walls and ceiling, briefly stunning him. Aang heads to the outside of the ship and prepares to make his escape on his glider. However, just as Aang takes off, Zuko is able to leap after him and grab his ankle. Not able to compensate for the extra weight nor to break free of Zuko's grip, Aang is unable to remain aloft, and the two crash clumsily onto the deck. The two prepare to face off a third time, but are distracted by the sudden appearance of Appa, carrying Sokka and Katara to Aang's rescue. Aang is unable to regain his focus before Zuko, who quickly launches a series of fire blasts that presses him to the edge of the deck and knocks his staff away. Another two blasts follow, and Aang, while apparently unharmed by the flames, falls overboard into the frigid sea below.
Aang sinks as Katara cries out in dismay, and he appears momentarily unconscious. However, his eyes soon open, before they and his tattoos glow a brilliant white, and his expression becomes stern. Aang, in the "Avatar State," begins to Waterbend the sea around him, pushing himself into the air on a whirling column of water. Zuko, Katara, and Sokka are shocked at this immense display of bending power, and Aang deposits himself on the deck of the ship before bending his liquid platform into a spinning wall of water that sends Zuko and all of his guards currently on deck flying, Zuko himself going overboard. Appa lands on the deck, while Aang, apparently dazed after the massive display of power, collapses.
Katara and Sokka rush to his aid, assuring that he is all right before preparing to leave. Sokka goes to retrieve Aang's staff, only to find Zuko climbing back onto the deck. At a great advantage due to Zuko's position, Sokka quickly strikes the prince in the forehead a number of times, sending him overboard again. Zuko is only barely able to cling to an anchor's chain approximately halfway down the ship's hull. Some of the soldiers recover and begin to approach Katara and the still-exhausted Aang. Katara, although inexperienced at Waterbending, is able to freeze the guards in place to stop their approach. All three take off on Appa just as Iroh arrives on the scene. Iroh helps Zuko on-board again, and the two launch a combined fire blast in an attempt to shoot down the escaping air bison. Aang recovers from his dazed state just in time to turn this attack against the Firebenders, using a blast of wind to redirect the fireball into one of the immense walls of ice on either side of the ship. The resulting avalanche buries the front half of Zuko's ship in ice and snow, stopping it cold. Appa flies into the distance, his passengers laughing happily. Zuko, angry that the Avatar has escaped his grasp, vows not to underestimate the boy again. He instructs his crew to dig the ship out and pursue the Avatar and his friends as soon as possible. Unfortunately for him, the majority of his crew is either frozen solid or helping to thaw other crew members.
As Appa flies into the sunset, Katara excitedly asks Aang how he was able to earlier execute incredibly powerful Waterbending techniques, a capability Aang himself is unable to understand. She then questions Aang as to why he did not initially say that he was the Avatar when Katara questioned him about the legend. Aang sadly and simply replies that he never wanted to be the Avatar, indicating the duty was impressed upon him against his wishes. Katara reminds Aang of the world's need for the Avatar, stating that he must master the Bending arts of Water, then Earth, then Fire. She muses that they might find a Waterbending teacher at the North Pole, and Aang quickly brightens up, suggesting they learn Waterbending together. Along with Sokka, who decides to come along under the excuse of this being an opportunity to defeat Firebenders, they decide to journey together. 
