South of Japan lies the tiny island of Okinawa. Once part of an independent kingdom of fisherman and farmers, Okinawa was conquered by the Chinese in the sixteenth century. Because the Chinese banned all weapons, the Okinawans had no way of protecting themselves from roaming bandits or greedy Chinese soldiers. Some of the islanders began to learn Kempo, or Shaolin Temple Boxing, as a means of defense. Often, however, they would modify many of Kempo's overly embellished techniques by incorporating martial principles they had learned from Japanese refugees who came to the island several hundred years earlier. Some one hundred years later the Japanese overran Okinawa and extended the ban on weapons to include the practice of martial arts. Nevertheless, Okinanwans continued to study their particular fighting methods in secret. Three regions developed their own unique styles, called te, the Japanese word for hand: Shuri-te, the most offensive of the styles, influenced by the weijia, or external school of Kung Fu; Naha-te, a defensive style, influenced by the neijia, or internal school of Kung Fu, and Tomari-te, which combined both styles of Kung Fu. Collectively, the styles were called Okinawa-te. At about this time, Karate's incredible breaking power developed. Powerful blows and kicks were used to smash through the lacquered bamboo armor worn by Japanese troops on Okinawa.

While the local martial arts were still outlawed, both Kendo and Judo were brought to Okinawa during the Japanese Keji Period (1868-1912). Because of the long martial art tradition on the island, the Okinawans soon mastered these arts as well. This impressed the Japanese, and a more liberal policy was adopted toward the “te” style of martial arts. They were included in the islands school curriculum in 1903. Soon after, Okinawa-te was renamed Karate-jutus (Chinese-hand art), emphasizing that the art had three components: Chinese Kung Fu and Kempo (kara), the indigenous martial arts (te), and the Japanese fighting tradition (jutsu).

The founder of modern Karate, Funakoshi Gichin (1869-1957), was a native of Okinawa who began studying Okinawa-te as a child. After mastering the art, he attempted to create a unified style of Karate-jutsu based on principles from each of the three styles. In 1902 he gave his first exhibition in Japan of the new martial art's potential. In 1921, while on a visit to Okinawa, Crown Prince (later Emperor) Hirohito immediately recognized the potentials of Karate-jutsu as a means of physical exercise and hand-to-hand combat; already in 1912 members of the Imperial Japanese Navy who served in Okinawa began studying the art. Hirohito returned to Japan and had his father, Emperor Taisho; invite Funakoshi to teach Karate-jutsu there. In 1922, this time as a guest of the Ministry of Education, Kunakoshi returned to Japan to give a series of demonstrations. The Japanese shared the crown prince's enthusiasm for the art; in just two years, Karate-jutsu became a standard element of the physical education curriculum in Japanese schools. In 1930 Mabuni Kenwa (1889-1952), another Karate-jutsu master from Okinawa, introduced his own style of Karate-jutsu in the Japanese city of Osaka, while many other styles of Karate-jutsu began developing on Okinawa at the same time.

By the early 1930s, as the martial art took on more Japanese characteristics, Funakoshi decided to shorten the name Karate-jutsu by changing the first character from one meaning "China" to another meaning "empty". At that time Japan was at war with China and wanted to rid itself of anything that even vaguely reminded them of the enemy. He also dropped the term jutsu in order to stress that the art could be studied as a way of life and not just a means of fighting. His decision to do this was probably influenced by his friend, Kano Jigoro, the founder of Judo.

For many years Karate was practiced and taught in dojo (school) belonging to other martial arts. By 1936, however, more than thirty exclusively Karate dojo had opened, the most important of which, the Shotokan, was headed by Funakoshi himself. After World War II, the American occupation forces in Japan banned all martial arts and the Shotokan was closed. It was reopened in 1947, when Karate was reclassified as a form of gymnastics and not as a martial art. It is more likely, however, that the reopening of the Shotokan was instigated by American servicemen, who wanted to learn Karate.

The most popular contemporary form of Karate was developed by Funakoshi's son, Funakoshi Yoshitaka. Following the example of Judo, he standardized Karate's techniques and lessened the impact of blows and kicks, so that Karate could be practiced as a sport. He also changed the name to Karate-do, further emphasizing that Karate was more than just a way of defeating an opponent in combat: it was a way of life. Karate-do spread worldwide; Karate was transformed into a "martial sport," using blows where Judo would use throws and locks.