Upon returning to the tribe, Aang is promptly banished by a furious Sokka for alerting the ship of the Fire Nation prince. Later, Zuko attacks the Southern Water Tribe village and demands the Avatar be surrendered to him. Aang returns to the village where he reveals that he is the Avatar and surrenders himself to Zuko on the condition that the latter leave the village be. Aboard Zuko's ship, Aang frees himself and battles Zuko. Katara and Sokka fly on Appa to save Aang and the three manage to escape. Katara and Sokka decide to accompany Aang on his travels to the Northern Water Tribe to find a waterbending teacher for both Aang and Katara.
Returning from the site of the shipwreck, Aang and Katara are greeted by many angry faces in the village, their accidental triggering of a flare on the ship having warned the Fire Nation of their presence. Because of the mishap, the safety of the village has been compromised. A bitter argument ensues, in which Sokka decides to banish Aang from the Southern Water Tribe for his perceived betrayal, an action Kanna agrees with. Katara, outraged by the decision, initially resolves to leave with Aang, who had offered to take her to the Northern Water Tribe to find a master waterbender who could teach her. However, Sokka asks her if she would actually choose Aang over her own family. As Aang states that he does not want to come between Katara and her family, she rethinks her decision and sadly decides to stay. A downcast Aang and Appa depart from the village, setting course for the Southern Air Temple, where Aang previously lived. Katara, frustrated that they have banished Aang, snaps angrily at her grandmother, leaving Kanna looking saddened.
Sokka hurriedly readies the young children for the imminent combat with the Fire Nation. Meanwhile, Aang and Appa rest on an wind-carved ice formation and Aang, acting as if Appa can talk to him, tells Appa somewhat dejectedly that he liked Katara. Aang suddenly spots Zuko's ship approaching the village and, realizing the severity of their predicament, he quickly decides to help defend his new friends, leaving a dozing Appa behind.
In time, Zuko's ship arrives at the Water Tribe village; its mere approach collapses Sokka's makeshift walls and towers. Sokka continues to stand bravely, only balking in order to avoid the ramp that descends from the ship. Zuko quickly descends, accompanied by a few soldiers. Sokka charges at him, but 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 from the villagers, expecting to find an old man somewhere in the village. He grabs Kanna threateningly and Sokka attacks Zuko again. Zuko defeats him with much ease as all Sokka manages is a lucky hit, which occurs when his boomerang strikes the back of Zuko's helmet. Enraged at being caught off guard, the prince prepares to deal a vicious strike with his firebending.
Before he can attack, however, Aang arrives, riding on the back of an otter penguin, and knocks Zuko off his feet. Dismounting the animal, Aang uses airbending and his staff to send a spray of snow at Zuko and his men; he stands and faces the prince, asking him if he is "looking for [him]". Zuko realizes and is shocked to discover that the Avatar is merely a twelve-year-old boy rather than the ancient master he was expecting. As he voices this, Aang's true identity is revealed to the entire village, as he had never told them he was the Avatar. 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 after a few seconds, realizing that Zuko's attacks would inevitably strike the children he has befriended, he asks Zuko if his surrender will ensure the safety of the villagers. Relaxing his stance, Zuko nods and, as Katara begs Aang not to go with the firebenders, his soldiers take Aang aboard as a prisoner and they depart for the Fire Nation.
Later in the day, as the rest of the tribe tries to clean up from the attack, Katara tries to convince Sokka that they need to rescue Aang. Sokka tries to interrupt Katara briefly before yelling over her, asking her, as he motions toward a small canoe he has prepared, if she is coming with him. Realizing that Sokka is on her side, she runs to him and gives him a hug. Kanna walks up behind them, catching them off-guard and sternly asks them what they plan on doing. When they have no answer, Kanna holds out two sleeping bags to them, saying in a much more placid voice that they would need those. She tells them that they have a long journey ahead of them and thanks Katara for restoring her hope, adding that Sokka needs to be nice to his sister. Kanna states that since her grandchildren were the ones who found Aang, their destinies are now tied to his, which draws looks of uncertainty from the siblings. Turning to look at the canoe, Katara remarks that if they want to catch the ship, the canoe is not going to work. As she finishes, Appa lumbers over a nearby hill, growling loudly. Katara runs excitedly toward Appa, though Sokka, realizing they will have to use the bison, mutters quietly, "You just love taking me out of my comfort zone, don't you?"
On the deck of Zuko's ship, the prince, examining Aang's staff, muses that the object would make a nice gift for his father. Zuko commands the guards to take Aang to the prison hold and his uncle, thrusting the staff onto him, to take the staff to the prince's personal quarters. As Zuko leaves, Iroh passes on the order to another guard and retreats to his own quarters.
While being taken to the prison hold, Aang makes conversation with the two guards escorting him, assuming that they have never before seen an airbender and asserting further, in a sly tone, that he could defeat both of them in a fight with his hands tied behind his back, which they are. When the guard in front of Aang orders him to stop talking as they arrive at the cell door, Aang takes a deep breath and blows, creating a powerful gust of wind which throws the guard in front of him into the heavy metal door and sends Aang flying backward into the guard behind him, propelling them into the stairs at the opposite end of the corridor. As both soldiers are dazed by the attack, Aang quickly jumps onto the deck and forces his way into the interior corridors of the ship with airbending. As he runs through the hallway, one of the guards emerges from the hold and shouts to a guard on the crow's nest that the Avatar has escaped.
Meanwhile, Katara and Sokka slowly pursue Zuko's ship on Appa, who swims slowly through the water. As Katara sits on the bison's head, trying to encourage him to fly, Sokka, who is reclining in the saddle, blandly calls out commands such as "fly", "elevate", and "up" at Appa. He tries to remember what phrase Aang used to get Appa to fly, and, casting around for it, he eventually lands on the correct one, "Yip-yip"; hearing it, the bison grunts and promptly lifts itself out of the water and into the sky, beginning to move at a much more rapid pace. Sokka's cynical façade and grumpiness are immediately forgotten in a fit of excitement, one which is momentarily dimmed when he turns to see his sister smirking smugly at him.
Aang continues to run through the ship's many hallways, displaying tremendous speed and agility. He encounters several soldiers in a hallway, their swords drawn; he asks them if they have seen his staff before the soldiers try to rush him. With a burst of airbending, Aang spirals through the corridor, running on the walls and ceiling to evade the soldiers. Meeting another soldier, Aang somersaults over him, deftly using the sharp point of his helmet to cut the bonds on his wrists, knocking the guard down in the process. He looks through several rooms, including one which contains a sleeping Iroh, before finally discovering Zuko's personal quarters and his staff leaning up against the far wall. Seeing his staff within the room, he runs in to claim it, but a waiting Zuko slams the door shut to cut off his escape route, forcing a confrontation. Zuko attacks Aang in an attempt to incapacitate him, but the airbender, albeit with some difficulty, manages to avoid Zuko's flames, at one point even wrapping him in a tapestry hanging from the wall; he retrieves his staff after a short exchange, which turns the battle in Aang's favor almost immediately. Using the staff to airbend, he picks up a mattress and slams it into Zuko, crushing him against the wall and up against the ceiling. As a stunned Zuko and the mattress fall back to the floor, Aang escapes the room and, after a few seconds, Zuko is able to look up but left enraged by his own defeat.
Aang reaches the bridge of the ship and, jumping over several stunned soldiers, rushes to the outer deck, throwing his glider, wings open, into the empty air beyond the railing. Just as Aang jumps to the glider, suspending himself underneath it, Zuko leaps off the deck after him and grabs Aang by his ankle. Unable to compensate for the extra weight nor break free of Zuko's grip, Aang and Zuko fall to the deck below. The two prepare to face off a third time, but are distracted by the sudden appearance of Appa, who is carrying Sokka and Katara; Zuko is stunned briefly as he looks at the large flying animal. Aang's enthusiasm is brief as Zuko attacks him almost immediately; airbending with his staff, the Avatar accidentally lifts himself into the air and the force of Zuko's next several fire blasts presses him to the edge of the deck, knocking his staff away. Another two blasts follow and Aang is thrown, unharmed by the flames but nonetheless unconscious, over the side of the ship into the frigid ocean.
As Aang begins to sink, Katara cries out in dismay; abruptly, his eyes flash open, glowing a brilliant white along with his tattoos as his expression becomes stern and angry. In the Avatar State, Aang waterbends the sea around him, rising out of the ocean on a towering, whirling column of water. Zuko, Katara, and Sokka are shocked by this immense display of bending power; as they stare, Aang quickly lowers himself to the deck of the ship, bending his liquid platform into a spinning wall of water that washes Zuko and all of the guards on deck away, Zuko himself tumbling 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 with it. In the same manner in which Zuko defeated him, Sokka jabs the prince in the forehead with the end of the staff thrice, stunning him enough to send him overboard again. However, Zuko is able to grasp the anchor chain, preventing himself from falling back into the water. 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, and the two launch a combined fire blast in an attempt to shoot down the escaping flying bison. Aang recovers from his dazed state just in time to defend against the attack, using a blast of wind to deflect the fireball into one of the massive walls of ice on either side of the ship. The resulting avalanche of ice collapses onto the front half of Zuko's ship, immobilizing it. As Appa flies into the distance, his liberated passengers laugh 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. The majority of his crew is either frozen solid or engaged with de-icing their compatriots.
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 questions Aang as to why, when she asked him about the Avatar, he denied any knowledge of the matter. 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, earth, and fire. She muses that they might find a waterbending teacher at the North Pole, and Aang quickly brightens up, suggesting they could both learn waterbending. Along with Sokka, who decides to come along to take advantage of the opportunity to defeat firebenders, the trio decides to travel to the Northern Tribe, but not before Aang lists a few places at which he wants to stop along the way.
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- Main article: Transcript: The Avatar Returns
- Main article: Avatar Extras for Book One: Water
- This is the first episode in which Aang waterbends, albeit while in the Avatar State.
- This episode includes the only time in the series when Iroh attacks Aang.
- This is one of the few episodes where Prince Zuko is shown wearing a Fire Nation helmet.
- Aang's suggestion to fight firebenders with fun foreshadows the events in "The Headband", when he uses fun to weaken the Fire Nation's control over their youth.
- When the soldiers take Aang onto their ship, Katara is seen shedding tears, mirroring what her grandmother did when the firebenders took Hama away.
- Aang reveals that he is the Avatar.
- When Aang is banished from the Southern Water Tribe, Katara grabs him and says that she is banished too. From the side shot, she grabs him and he is on her left side, but when the shot changes to the front, he is on her right-hand side.
- When Sokka waits for Zuko's ship, it cracks the ice behind Sokka and there are igloos. In the next frame, the igloos disappear.
- As Sokka looks up at Zuko's ship right before its ramp opens, he is not wearing his gloves. This is fixed in the next shot.
- Just after Zuko breaks Sokka's spear, Sokka's left leg appears to switch places with his right.
- The pieces of Sokka's spear seem to vanish after Zuko breaks them off.
- When Aang sleds into Zuko, Sokka disappears from in front of Zuko. When Aang turns to speak to the villagers, Sokka appears next to Katara.
- When Zuko orders his men to surround Aang, the man on the far right side and the one on the far left are walking into the head of the man below them.
- After Zuko nods in agreement in response to Aang's offer to give himself up, the parting in the orange portion of Aang's shirt becomes misshapen for a few frames.
- After Zuko leaves the village, several children are shown repairing a broken tent that was harmed by the Fire Nation; however in earlier shots, the Fire Nation do absolutely nothing to the tent, which is shown stable in the background.
- In the Finnish dub, Zuko implies that Ozai was raised by monks.
- When Zuko jumps onto Aang's glider and they crash onto the ship's deck, Aang's staff goes flying toward the bow, but when he stands up, it is in his hand.
- When Aang first comes out of the water in the Avatar State, the arrow on his head is not glowing.
- When Aang shows Katara and Sokka the map, he hops down from his spot on Appa, and his staff lands behind him. However, when the screen goes to a close-up, the staff is missing.
- In the ending, when Aang says, "Because I never wanted to be," for a split second when he turns his head, his arrow points at his right eye, at the tip at his brow. This is kept in a panel for the Cine-Manga.
- When Aang fights Zuko in the village, this is technically the first time he has actually had to fight or defend himself, as opposed to before the war when he just trained with other airbenders.
- This is the only episode to have no opening sequence.
- This episode has the longest recap out of all the other episodes in the series.
- This is the first of three episodes in the series to have a name that starts with "The Avatar"; "The Avatar State" and "The Avatar and the Fire Lord" are the other two.