With Princess Vivi safely back in Alabasta and a new crewmate, Nico Robin, on board, the Straw Hats' next adventure began when a giant ship suddenly fell from the sky. At this point, the Log Pose started to point straight up and Robin explained that the log was "captured" by an island with a stronger magnetic field—a Sky Island.While exploring the sinking ruins of the ship, they came across an old map of a land named Skypiea. Through a skull and some books, they figured out that the ship was the Saint Briss, which left the Kingdom of Breeze in South Blue 208 years ago. This appalls the crew and they continued salvaging.
When they tried to salvage the sinking ship for more information, they came across a group of pirates led by Masira, who claimed that he had control over the territory and all ships that sank there belonged to him. Masira and his crew began the salvage operation and were in the process of raising the ship when they ran into a snag. Luffy, Zoro, and Sanji, who were underwater searching the wreck, started beating up Masira's crew. Masira went down to handle things and confronted them when a Giant Sea Turtle came along and swallowed the ship, though Luffy, Zoro, Sanji, and Masira all escape. However, out of nowhere, the sky turned dark and three humongous shadows appeared. Out of fear, the pirates ran away as quickly as possible. Luckily, Robin managed to take an eternal pose to the nearby island of Jaya from Masira's Ship, and went there to find more information.
Roshio the Executioner, a pirate with a 48 million bounty, won a poker game against Hyena Bellamy, a pirate with a bounty of 55 million. Bellamy accused Roshio of cheating and got Sarkies to back him up. When Roshio disagreed, Bellamy stabbed his hand with a knife and shot him in the head.
In the port town of Mock Town, the group of Luffy, Zoro, and Nami encountered several odd people, all of whom are members of the Blackbeard Pirates, until they ended up at a hotel. There, they encountered Sarkies of the Bellamy Pirates, who insulted the group and even gave them some money to buy better clothes. They later ended up in a bar, where they encountered Blackbeard himself, though they do not know who he was. After he left, Bellamy himself barged in looking for Luffy, claiming that he wants to test him to see if he was worthy of joining his "New Age" of pirates. However, when Nami asked the bartender for information about Sky Island, Bellamy rejected this notion immediately and the entire bar started ridiculing the three.
In Bellamy's New Age, dreams will be worthless. He explained that so many people are focused on searching for dream treasures like the City of Gold and One Piece, that they ignored all of the real treasures around them. Bellamy attacked Luffy and Zoro while the other people in the bar started throwing things at them, but despite Nami's urging, they refused to fight back paralleling how Shanks and his crew did not fight back against Higuma when he and his crew attacked them in Makino's bar.
They were thrown out of the bar, where they once again encounter Blackbeard, who stated that they did the right thing not fighting back those who were not worth the effort of fighting against and encouraged Luffy on his dreams. The three went back to the ship to discover that Robin managed to find some relevant information—on the other side of the island there was a man who might know how to reach Sky Island, Montblanc Cricket. On the way there, they encountered Shoujou, an orangutan pirate who has a 36 million bounty, and was also Masira's brother, but they managed to escape. They arrived at his house to find that it was empty, but they found a book—the story of Montblanc Noland, a.k.a. "Liar Noland". Sanji explained that it was a fairy tale from North Blue.
The story of Noland goes that while exploring the Grand Line hundreds of years ago, Noland came across a City of Gold. He returned to his home and informed the king, who accompanied him on the next journey to the island. However, when they reached the island, the City of Gold was gone. Angered, the king sentenced him to death for lying.
To his last breath, Noland claimed that he was telling the truth, and proclaimed that the City of Gold must have sunk underwater. However, no one would believe him and he was executed. As it turned out, Cricket is a descendant of Noland and was trying to prove whether it exists or not by diving into the ocean every day to search for evidence, to the point of injuring himself.
Chopper treated him and they met up with Masira and Shoujou again, who helped Cricket out on his quest under the name "Saruyama Alliance". Cricket explained that if the Sky Island existed, the only way to reach it would be through "Knock Up Stream", a humongous geyser in the ocean. In order to reach it, Cricket has the Straw Hats go into the forest to search for a "South Bird", a bird whose head always points south. During this, the Saruyama Alliance upgraded the Going Merry in order to withstand Knock Up Stream.
Meanwhile, hearing that Cricket managed to uncover some gold, Bellamy and his crew decided to steal it from him, severely injuring him and the others in the process using his "Bane Bane no Mi", which can turn his limbs into springs. When the crew returned with the South Bird in tow, Luffy decided to get the gold back. In Mock Town, new bounties were mailed in, and to everyone's surprise, they found out that Luffy's bounty was 100,000,000 while Zoro’s was 60,000,000—in comparison, Bellamy's was only 55,000,000. Bellamy scoffed at this, claiming that they were fakes that were made to scare him.
This calmed everyone down, until Luffy screamed for Bellamy to come out. Luffy demanded that Bellamy give the gold back, but he refused. Bellamy attacked him with his devil fruit powers, but Luffy still does not fight back. Angered, he decides to finish him off with his ultimate attack, Spring Hopper. At this point, Luffy finally attacked, and took him down in one punch.
He took the gold and went back to Cricket's house while the townspeople ran away in fear. Upon hearing about his bounty, Blackbeard and his crew decided to strike.
Somewhere else, on an island in the Grand Line, the status of Buggy and his crew was shown, as Ace boarded his ship and offered to help him search for Luffy. Meanwhile, Shanks tried to contact Whitebeard only to have his letter torn up, with Whitebeard telling the messenger, Rockstar, to have Shanks meet him in person. Rockstar reported back, to which Shanks told the crew to prepare for a meeting with Whitebeard.
When Luffy returned and gave Cricket his gold back, he and the crew set off for Knock Up Stream, led by the Saruyama Alliance and the South Bird. When they reach the right area, they were confronted by the Blackbeard Pirates, who revealed the Straw Hat Pirates' new bounties to them. However, before a battle ensued, the Straw Hats were caught in Knock Up Stream and were sent flying into the White Sea, leaving the Blackbeard Pirates' raft to be destroyed and to fall to the sea below.
This arc would also start the recurring theme of the Going Merry falling apart after the major damage it took in escaping from the Marines in Alabasta and that it continued to fall apart from the Straw Hats' latest battles, as well as Usopp serving as the acting shipwright to keep it functional (who previously repaired the minor damages to the Going Merry during the Reverse Mountain and Drum Island Arcs).
While Luffy may have met Blackbeard here without knowing who he was, he would not learn his true identity until the Impel Down Arc.
Bellamy was introduced (later at Dressrosa Arc he plays an important role) and mentioned the "Emerald City" following the "Lost City of Gold" as both myths, and the City of Gold was rediscovered in Skypiea.
Blackbeard would later plan a second attempt to capture Luffy for the World Government during the Post-Enies Lobby Arc, though he ended not having to go after Luffy when Ace got in the way and Blackbeard was able to capture him and use Ace instead to be able to get into the Shichibukai.