The episode starts off as Jake, Grandpa and Fu Dog are on their way to the train station. Jake is wondering how they are going to take the train to a magical world, but Grandpa says they are taking the elevator, further confusing Jake. When Grandpa presses the elevator buttons and switches it, the elevator comes with a magical creature helping them with the bags. Fu Dog tells Jake to hold on and the elevator goes downward very fast. Jake reaches as he skates on his skateboard, but an Australian Dragon named Fred Nerk makes him trip. Andam turns into a dragon and hits the skateboard while Kulde turns into a dragon and rescues Jake, but breathes ice and accidentally freezes Chang.
Jake has done a couple of bad things such as using shape shifting powers for his own personal gain, revealing dragon identities to humans and taking a soul sucking nix to a school dance. Fu explains to Councilor Kulde that he shouldn't blame Jake because Jasmine was not Omina. Chang, Kukulkhan, Andam, and Kulde are confused. Lao Shi tells the councilors that Jake is brave, has a good heart and is even greater. The Dragon Council shows three tests such as the Test of Judgment in Fire, the Test of Wisdom in Battle, and the Test of Courage in Flight, all of which will require Jake to pass at least two.
The first test involves shooting fireballs at an ice sculpture and to fire at the bad guys and not the good guys. However, since he has inhaled sneezing powder, Jake starts sneezing and shoots fireballs at the good guys, thus failing. His Grandpa is disappointed in him. Fu explains to Jake that the council never wanted him to be Jake's master because they didn't want any relatives training a young dragon. In a volcano, an evil and dark creature-like dragon is in gray clothes and a servant arrives to inform the evil dragon that Jake has failed the first test.
Later, Jake is training for the second test: Knowledge in Battle. Jake challenges Fu (in a griffin costume) in a statue museum. Jake wonders why the Huntsman was the #4 Threat and the #1 Threat was the Dark Dragon. When the battle starts, Jake has to fight the Brownies. He uses what he always used called "Plan Jake" even though the test states that you have to have knowledge to win. When the Brownies start winning, Jake thinks and remembers that Brownies like shiny things. He makes the dirt shiny by shooting fireballs, and catches the Brownies in his bare hands, successfully passing the test.
The next test is Courage in Flight. Jake chooses the Australian dragon as his opponent and Nerk uses tricks against Jake to catch him off guard, but when Jake defeats him, Nerk gets grabbed by a shadowy hand and pulled into the volcano. Jake tries to find him, but the same evil dragon arrives, proclaiming himself to be the Dark Dragon, and ambushes Jake. His foot soldiers, called Shade Demons, corner Jake and Jake fights the demons. He manages to rescue Fred Nerk and while Jake fights the Dark Dragon, Fred Nerk arrives and stops the Dark Dragon.
Jake fails the third test since Nerk beat him, and Jake explains to the Dragon Councilors and the other dragon that the Dark Dragon has returned. Nerk tells Andam that Jake was actually the one who won, but Jake decided to sacrifice his victory to save him instead. Councilor Kulde tells Jake that sacrificing his own glory to save a dragon in danger shows good Test of Judgment in Fire, and Omina nods. Kulde gives a Jake a bonus credit which allows him to pass. Chang is infuriated, but Jake just drops the Dark Dragon's claw.
As Grandpa, Jake and Fu Dog leave, Grandpa acts serious because the Dark Dragon knew too much about the test and suspects that there was a dark spy working within them.
Meanwhile, back at the volcano, the Dark Dragon has failed and the same servant who arrived reveals themselves to be Councilor Chang.
As Jake is about to leave, he shakes hands with Fred Nerk, and they both decide to pull the same last prank on each other.