With Princess Vivi now safely back in Alabasta and a new crewmate, Nico Robin, on board, the Straw Hats' next adventure begins when a giant ship suddenly falls from the sky. At this point, the Log Pose starts pointing straight up and Robin explains 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 come across an old map of a land named Skypiea. Through a skull and some books, they figure out that this ship was the Saint Briss, which left the Kingdom of Breeze in South Blue 208 years ago. This appalls the crew and they continue salvaging.
When they try to salvage the sinking ship for more information, they come across a group of pirates led by Masira, who claims that he has control over the territory and all ships that sink there belong to him. Masira and his crew begin salvage operation and are in the process of raising the ship when they run into a snag, Luffy, Zoro, and Sanji, who are underwater searching the wreck start beating up Masira's crew. Masira goes down to handle things and confronts them when a Giant Sea Turtle comes along and swallows the ship, though Luffy, Zoro, Sanji, and Masira all escape. However, out of nowhere, the sky turns dark and three humongous shadows appear. Out of fear, the pirates run away as quickly as possible. Luckily, Robin managed to take an eternal pose to the nearby island of Jaya from Masira's Ship, and they go there for more information.
Roshio the Executioner, a pirate with a 48 million belly bounty wins a poker game with Hyena Bellamy, a pirate with a bounty of 55 million belly. Bellamy accuses Roshio of cheating and gets Sarkies to back him up. When Roshio disagrees, Bellamy stabs his hand with a knife and shoots him in the head.
In the port town of Mock Town, the group of Luffy, Zoro, and Nami encounter several odd people, all of whom are members of the Blackbeard Pirates, until they end up at a hotel. There, they encounter Sarkies of the Bellamy Pirates, who insults the group and even gives them some money to buy better clothes. They later end up in a bar, where they encounter Blackbeard himself, though they do not know who he is. After he leaves, Bellamy himself barges in looking for Luffy, claiming that he wants to test him to see if he is worthy of joining his "New Age" of pirates. However, when Nami asks the bartender for information about Sky Island, Bellamy rejects this notion immediately and the entire bar starts ridiculing the three.
In Bellamy's New Age, dreams will be worthless. He explains that so many people are focused on searching for dream treasures like the Gold City and One Piece that they ignore all of the real treasures around them. Bellamy attacks Luffy and Zoro while the other people in the bar throw objects at them, but despite Nami's urging, they refuse 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 are thrown out of the bar, where they once again encounter Blackbeard, who states that they did the right thing not fighting back those who are not worth the effort of fighting against and encourages Luffy on his dreams. The three go 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 encounter Shoujou,an orangutan pirate who has a 36 million belly bounty, and is also Masira's brother, but they manage to escape. They arrive at his house to find that it is empty, but they find a book—the story of Montblanc Noland, aka "Liar Noland". Sanji explains that it is 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 that the gold city must have sunk underwater. However, no one would believe him and he was executed. As it turns out, Cricket is a descendant of Noland and is 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 treats him and they meet up with Masira and Shoujou again, who help Cricket out on his quest under the name "Saruyama Alliance". Cricket explains that if Sky Island exists, 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 upgrades the Going Merry in order to withstand Knock Up Stream.
Meanwhile, hearing that Cricket managed to uncover some gold, Bellamy and his crew decide 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 returns with the South Bird in tow, Luffy decides to get the gold back. In Mock Town, new bounties are mailed in, and to everyone's surprise, they find out that Luffy's bounty is now 100,000,000 while Zoro's is 60,000,000—in comparison, Bellamy's was only 55,000,000 Bellamy scoffs at this, claiming that they were fakes made to scare him.
This calms everyone down, until Luffy screams for Bellamy to come out. Luffy demands that Bellamy give the gold back, but he refuses. Bellamy attacks 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 attacks, and takes him down in one punch.
He takes the gold and heads back to Cricket's house while the townspeople run away in fear. Upon hearing about his bounty, Blackbeard and his crew decide to strike.
Somewhere else, on an island in the Grand Line, the status of Buggy and his crew is shown, as Ace boards his ship and offers to help him search for Luffy. Meanwhile, Shanks tries to contact Whitebeard only to have his letter torn up, with Whitebeard telling the messenger, Rockstar, to have Shanks meet him in person. Rockstar reports back, to which Shanks tells the crew to prepare for a meeting with Whitebeard.
When Luffy returns and gives 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 are confronted by the Blackbeard Pirates, who reveal the Straw Hat Pirates' new bounties to them. However, before a battle ensues, the Straw Hats are caught in Knock Up Stream and are 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 continues 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 is, he would not learn his true identity until the Impel Down Arc.
Bellamy mentions 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.