The film concerns Wang's one-armed martial arts master being stalked by an Imperial assassin, the master of two fighters (the Tibetan Lamas) who were killed in the previous film. When the One-Armed Boxer is invited to attend a martial arts tournament, his efforts to lay low are unsuccessful, and the assassin soon tracks him down with the help of his three subordinates competing in the tournament: a Thai boxer, a yoga master, and a kobojutsu user.
The title refers to the assassin's weapon, the "Flying guillotine" which resembles a hat with a bladed rim attached to a long chain. Upon enveloping one's head, the blades cleanly decapitate the victim with a quick pull of the chain.
Clips from the film's soundtrack (particularly the score whenever the assassin appears) have been sampled by Wu Tang Clan and has been mentioned in their lyrics. Quentin Tarantino has cited the film as "one of my favorite movies of all time."