Inuyasha and the gang meet Taromaru, the son of a village leader. They go to the Temple of the Water God, where children are being sacrificed. The Water God has a sacred treasure and toys around with the group.

Sango reveals the secret story of the Shikon Jewel's birth. Midoriko, a priestess with powerful spiritual powers, fused with many demons after a battle to the death. She absorbed the souls of the demons into her own, punched out her soul, and died. Her soul is the Shikon Jewel.

Sango fights Inuyasha, believing him to be her enemy. Naraku's plan is to have her fight to the death using the power of the Shikon Jewel shard. But Sango listens to Kagome and is no longer suspicious of Inuyasha.

Sango, a demon slayer, is invited to Hitomi Castle along with her father, the leader of the demon slayers, and her younger brother, Kohaku. But it is a trap. Meanwhile, the undefended village is attacked by a horde of demons and annihilated. Naraku takes the Shikon Jewel shards that they had been gathering and leaves.

Kikyo paralyzes Kagome. Inuyasha appears before her. Kikyo has been gathering the souls of dead girls. She vents her grudge against Inuyasha. Inuyasha reveals that he has never forgotten her. When Inuyasha kisses Kikyo, Kikyo tries to drag him to hell. But Inuyasha hears Kagome's voice and regains consciousness.

Kikyo, who was brought back to life, is living as a priestess. A monk, who realizes that Kikyo is dead, tries to make Kikyo pass on, but Kikyo ends up killing him. Inuyasha saves the monk's disciples and runs to Kikyo when he hears the priestess's name.

Kagome has her sacred jewel shards taken away from her and is returned to the present day, unable to return to feudal Japan. Back to her normal life, she agrees to go on a date with Hojo. Meanwhile, Inuyasha and the gang try to find out more about the mysterious Naraku.

Sesshomaru wields the Tetsusaiga with his borrowed arm against Inuyasha, who fights back with his scabbard. When the two strike each other at the same time, Inuyasha gets up close to Sesshomaru, rips off his arm, and gets back the Tetsusaiga. When Inuyasha learns Naraku's plan, he fears that Kagome might die.

Naraku appears before Sesshomaru and lends him an arm with a sacred jewel shard embedded in it. Sesshomaru attaches the arm to himself and appears before Inuyasha and the gang to steal the Tetsusaiga.