The film opens with events that happened at InuYasha's birth. The suitor Takemaru kills Izayoi just before InuYasha's father arrives. InuYasha's father arrives and resurrects Izayoi, telling her to escape with their son, whom he names as InuYasha and gives her the red Fire Rat Armor to protect them from the burning palace. Presumably, InuYasha's father died with Takemaru when the entire complex crashed and burned down as the two dueled inside the palace.[1][2]

In the present era, Kagome's Grandfather comes by with a sword which he calls a 'national treasure'; as Grandfather is about to put it in the storehouse for "safe keeping", Kagome's younger brother goes over to the sword, and it speaks. The sword is Sō'unga, the sword of hell, and it possesses a connection to InuYasha's father. It tried to possess InuYasha, but InuYasha tried his best to resist being controlled and finally brings the sword back to the past, but in the process unleashes the deadly powers the sword holds on an evacuated village.

Sesshomaru is also alerted of the presence of Sō'unga, and he follows the scent to find that InuYasha is in possession of the sword. The two of them duel and at a crucial moment, Kagome saves the day and forces the Sō'unga to release InuYasha from its grasp. It finds a new demon host and recovers Sesshomaru's lost left arm, then revives Takemaru and subsequently possess him, aiming to take revenge on InuYasha and Sesshomaru.

So'unga was the third sword that InuYasha's father possessed. Individually, it was stronger than either the Tenseiga or the Tessaiga. Sesshomaru wields the Tenseiga, and InuYasha wields the Tessaiga, can the two arch nemesis find a way to bring an end to Sō'unga, the Sword of World Conquest?