The story begins with a flashback to Feudal Japan, when the half-demon InuYasha raids a human village to steal the Jewel of Four Souls, a magical jewel that enhances its wielder's powers and can grant a single wish. InuYasha hopes to use the gem to turn himself into a full-blooded demon, but is soon stopped when Kikyo, the young miko of the village, shoots him with a sacred arrow, sealing him onto the sacred tree Goshinboku in the nearby forest. 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.
The story then shifts to modern Tokyo, where a junior high school girl named Kagome Higurashi lives on the grounds of her family's hereditary Shinto shrine. When she goes into the wellhouse to retrieve her cat, Buyo, a centipede demon bursts out of the enshrined Bone Eater's Well and pulls her through it.
Kagome emerges into a strange wilderness, initially unaware that she has travelled back through time to the Sengoku period of Japan, fifty years after Kikyo's death. Other than the Bone Eater's Well itself, the only familiar landmark is Goshinboku. She finds InuYasha still sealed onto the tree in an enchanted sleep, and a group of hostile peasants who drag her back to their village.
Their old priestess, Kaede, recognizes Kagome as the reincarnation of her sister Kikyo; when the centipede demon returns, Kaede realizes that the Jewel of Four Souls has also been reborn in Kagome's body. Kagome frees InuYasha so he can kill the centipede demon, but after defeating it, InuYasha again tries to take the Jewel for himself. Kaede thwarts him by placing a magical rosary around his neck, allowing Kagome to subdue him with a simple command.