The story begins with a flashback to Feudal Japan, when the half-demon, InuYasha raids a human village to steal the Sacred 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 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 well house 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 traveled 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 the simple command, "Sit!"
The Jewel of Four Souls attracts more demons, and the jewel is shattered into numerous shards that disperse across Japan. Even the individual shards are capable of granting great power, and are eagerly sought by humans and demons alike. Kagome and InuYasha set out to collect the shards and restore the Jewel of Four Souls. Along the way, they befriend Shippo, a small fox demon; Miroku, a perverted cursed monk; and Sango, a demon-slayer with a tragic past.
The group encounters many friends and foes during the adventure, including InuYasha's older half-brother Sesshomaru; Kikyo, partially resurrected with a fragment of Kagome's soul; Naraku, a devious and powerful collective half-demon and the main antagonist who manipulated the initial conflict between Kikyo and InuYasha; and a wolf demon named Koga, who is InuYasha's dedicated rival in both love and war.
Eventually, Naraku collects all of the shards and reassembles the Jewel of Four Souls. Although InuYasha defeats him, Naraku uses his power as the Jewel's owner to wish for Kagome's soul to be trapped inside it with his own, which would allow Naraku to survive within it in eternal conflict with her. Naraku's wish can only be fulfilled by tricking Kagome to also make a selfish wish to save herself, but she has enough confidence in InuYasha, and instead wishes for the Jewel to disappear forever.
Kagome is thrown back into her own time, also Inuyasha is thrown back to the feudal world, and the well stopped working. However, after 3 years Kagome graduated high school, and she comes to a realization, which allows the well to work again. This leads Kagome and Inuyasha to meet again and get married.