The story is set in the Valley of Peace, a fictional land in ancient China inhabited by anthropomorphic animals. Po, a giant panda, is a kung fu fanatic who idolizes the Furious Five — Tigress, Monkey, Mantis, Viper, and Crane — a quintet of kung fu masters trained by the red panda Master Shifu. As he helps his goose father Mr. Ping in his noodle restaurant, Po is unable to pursue his dream of becoming a kung fu master himself.
Grand Master Oogway, an old tortoise and Shifu's mentor, has a vision that Shifu's adoptive son and former student, the evil snow leopard Tai Lung, will escape from prison and return to the Valley of Peace to take revenge for being denied the Dragon Scroll, which is said to hold the secret to limitless power. Shifu is alarmed and sends his messenger, the goose Zeng, to prevent Tai Lung's escape. He then holds a kung fu tournament for the Furious Five so that Oogway may identify the Dragon Warrior, the one kung fu master worthy of receiving the Dragon Scroll and capable of defeating Tai Lung. Forced to take a cumbersome noodle cart to the tournament, Po arrives as the arena doors close and is unable to enter. Desperate to see the Dragon Warrior chosen, Po straps himself to a set of fireworks, rockets into the sky, and crashes into the middle of the arena and opens his eyes to see Oogway pointing his finger at him. To everyone's surprise, Oogway proclaims Po as the Dragon Warrior, much to the Furious Five's dismay.