Inu-Yasha has mastered the ultimate attack of the Tetsusaiga and continues his battle for the Shikon Jewel shards with Kagome, Shippo, Sango, and Miroku. Unfortunately, a freak occurance with a jewel shard has brought to life an incarnation of a demonic enemy sealed by Inu-Yashas' father. Inu-Yasha must surpass his father and destroy this demon or every soul in Japan will be consumed.

Inuyasha and company have finally destroyed Naraku. And each start to go in their separate ways. Sango going to find her younger brother Kohaku; Miroku back to his old home; Inuyasha, Kagome and Shippou go to gather the rest of the Shikon shards. Unfortunately this peace is not to last. Shortly afterwards the full moon rises, and just keeps rising each night bringing with it the promise of danger. Kagura and Kanna go in search of a mirror, where locked inside is the ruler of the eternal night, Kaguya. To set her free they must gather five items and drop them into the five lakes of Fuji. Setting her free means the worst danger for Inuyasha and the others. Who are forced to face this new threat.

Izayoi and Inu no Taishou, Inuyasha's parents, are having problems with a human named Setsuna no Takemaru. Sou'unga a magical sword that has been sealed away for 700 years is found. Now everyone is after the sword and its powers but it seems the sword has something else in mind.

The mysterious island of Houraijima has reappeared after 50 years, and with its reappearance has brought the attack of four gods, the Shitoushin, who have their eyes set on the powers that protect and sustain the island. Now it's up to Inuyasha and his friends, along with Sesshoumaru, to find a way to defeat the powerful Shitoushin.