The game was inspired by Bruce Lee's Hong Kong martial arts films, with the main player character Oolong modelled after Lee (like Bruceploitation films). In contrast to the grounded realism of Karate Champ, Yie Ar Kung-Fu moved the genre towards more fantastical, fast-paced action, with various different characters having a variety of special moves and high jumps, establishing the template for subsequent fighting games. It also introduced the health meter system to the genre, in contrast to the point-scoring system of Karate Champ.

The game was a commercial success in arcades, becoming the highest-grossing arcade conversion kit of 1985 in the United States while also being successful in Japan and Europe. It was ported to various home systems, including home computer conversions which were critically and commercially successful, becoming the best-selling home video game of 1986 in the United Kingdom.