The story begins in Feudal Japan, when InuYasha, a half-demon (han'yô), steals the Jewel of Four Souls from a village. The Jewel of Four Souls is an item that can increase one's powers enormously. InuYasha does not get far before Kikyo, the young miko of the village, shoots him with a sacred arrow that indefinitely seals him onto Goshinboku, a sacred tree in the nearby forest. After being mortally wounded, Kikyo tells her younger sister, Kaede, to burn the jewel with her body to prevent it from falling into the hands of evil.

In modern Tokyo, a junior high school girl named Kagome Higurashi is on her way to school. She stops in the well house of her family's Shinto shrine to retrieve her cat, Buyo, when a centipede demon emerges from the well and pulls her into the Sengoku period of Japan.

Not knowing where she is, Kagome wanders around a forest near the well. She spots Goshinboku off in the distance and proceeds towards it. On the tree, she finds InuYasha, who is still sealed in an enchanted sleep. Villagers seize her and take her to the old priestess, Kaede. Recognizing that Kagome is the reincarnation of her sister Kikyo, Kaede tells her the story of Kikyo and InuYasha.

The centipede attacks again, and Kagome is forced to release InuYasha from his enchantment so he can kill it. After defeating the centipede, InuYasha tries to take the Jewel of Four Souls from Kagome. In order to thwart InuYasha and to save Kagome's life, Kaede places magical prayer beads around InuYasha's neck so that Kagome can subdue him.

The Jewel of Four Souls attracts more demons, and in a battle against a carrion crow demon, the jewel is shattered into numerous shards that spread across Japan.

Kagome and InuYasha set out to collect the shards and restore the Jewel of Four Souls. Along the way, they befriend Shippo, a fox demon; Miroku, a cursed monk; and Sango, a demon-slayer whose brother was possessed and forced to slaughter the rest of his village. The group encounters many friends and foes during the adventure, including InuYasha's older half-brother Sesshomaru; Kikyo, who was resurrected with part of Kagome's soul; Naraku, who tricked Kikyo and InuYasha into turning against each other; and a wolf demon named Koga, who is in love with Kagome and constantly bickers with InuYasha.