The second episode of Barbie and the Diamond Castle is the third episode of the third season of the online series The Legend of Korra. The movie is about Katara, a young, tomboyish girl who trains every day to become the next Avatar. Due to her usual training schedule, her father sends her away to play in a neighboring city, which happens to be the city of Ba Sing Se. Once there, Katara meets two different tribes of benders, with the intention of befriending them so that she can heal her father, but ends up fighting alongside them.
The movie is set in a parallel universe to that of Avatar: The Last Airbender, meaning that the adventures of Korra in the first movie are expanded upon in the second. In the end, it is revealed that the pink flower from The Legend of Korra is in fact an avatar flower, a spiritual form of bender energy that is given to the Avatar once they have reached the Spirit World. Katara gets the flower from the help of Zuko, a member of a rival tribe, who tells her about the flower after she heals him. Katara comes to understand the plight of those who belong to opposing groups and tries to find a way to mend the rift between the two tribes.
The first part of the movie was much like the first part of the online movie "Fruits Basket" with a bit more humor, as it introduced Katara to different benders. The action of the movie focuses on Katara's discovery of the Avatar flower, when she is healed of a horrific accident. While working as a healer in the city of Ba Sing Se, she meets Ozai, a senior member of the Fire Nation who has run away from his empire.
On his trip to Ba Sing Se, Ozai meets a woman named Zuko, and a mysterious man named Pai Sho, whose life he saved from a water bender, whom he later believes was responsible for his parents' death. As a result, Zuko is sympathetic to Ozai, and the two form a friendship.
Eventually, the two clans, the Fire and Water Tribes, come into conflict and a contest of wills ensues, and the three rival tribes begin battling each other. Katara is pitted against Zuko and Pai Sho, while Zuko and Ozai play each other in a game of rock, paper, scissors. This cause the two tribes to join forces, forming the Great Uniting Council. The council assigns Katara to heal the injured Firebenders of the Fire Nation, while Ozai sends Zuko to take care of the Waterbenders.
As Zuko goes to the city of Gaoling to find Katara, he meets a girl named Mai, who also wanted to heal the Firebenders. Mai, Zuko, and Ozai are paired against each other, and the two are assigned to fight with dueling knives, and decide that the match will be won by the last one standing. Mai is banished from the battle, and Zuko orders Mai to bring back the element of water.
In the meantime, the battle is brought to a head as Ozai defeats Zuko by trapping him in a glass of water, which then transforms into a tattoo that renders Zuko unable to fight. Back at the royal palace, Ozai learns that the Firebenders of Gaoling are hiding a necklace that Zuko possesses but is prevented from taking it because of his royal shield. With no other option, Ozai sends a soldier to steal the necklace to be taken by another, and Zuko gets free and uses his sword to destroy the guard.
After this, Katara decides to give up her healer job and helps the two tribes to get the necklace together. With the help of a third character named Chopper, who is a bender in a fish costume, and a fourth character, Kya, who help out at the same time as Chopper is trying to buy a bench at the local market, the two tribes' conflict is settled and the necklace is retrieved. Katara herself gets poisoned by her blood, but thanks to Zuko's healing prowess, survives, and the two girls share a kiss before parting ways.