The reappearance of the mysterious island of Houraijima after fifty years incurs the wrath of the four gods, the Shitoushin. With their eyes set on the powers that protect and sustain the island, the Shitoushin must be defeated while InuYasha and his friends try to help the children that are trapped on that island escape.
MOVIE OVERVIEW:
A small group of children on Horai Island (whom we later learn to be half-demon) watch as a Kikyo look-alike develops in a green orb, then stand in front of the Cauldron of Resonance while it comes to life. Four scars, the mark of the Four War Gods (Ryura, Jura, Kyura, and Gora), appear on all of the children's backs except for the youngest girl, Ai. Asagi, the oldest, tells Ai to leave the island while she still does not bear the mark and says her goodbye. The Four War Gods find out that Ai has escaped and try to retrieve her, but InuYasha and the others defeat Gora and save Ai, who later asks InuYasha to save the others on Horai Island. Later, while Ai rests, InuYasha explains the myth of Horai Island, a place that appears once every fifty years. He remembers fifty years ago, when Kikyo took him to the island to meet the half-demon children. Suddenly, the Four War Gods appeared. Gora sucked some of Kikyo's blood (which was used to make Kikyo's doppelganger), and Ryura marks InuYasha's back with the scar, saying that he would never be free from them once he has the scar on him. The gang decides to head to Horai Island to investigate.
The villagers panic upon seeing the island. In a small hut, Kikyo listens to a man's tale of Horai Island, then leaves, saying she will defeat the demons. The rest of the villagers rush to the shrine and start praying for divine protection when Kyura, who proceeds to burn down the shrine and kill many of the villagers. Sesshomaru arrives and drives Kyura off with his Dragon Strike. After the battle, he remembers back to his first encounter with Kyura, when he was marked by the scar.
As InuYasha and company near the island, Jura appears and fires his Thunder Cannon at them, destroying their boat. Miroku and Sango fly away on Kirara, pursued by Jura, while InuYasha, Kagome, and Ai escape to the beach, where they meet Ryura. In the ensuing fight, Ryura easily deflects InuYasha's Wind Scar with his Earth Dragon Gale, then calls upon his Dragon Lightning and nearly kills InuYasha, but Kagome stops him by firing a sacred arrow. Ryura is forced to retreat, but not before he hurls some insults at InuYasha.
Ai leads the group to the village, where they find Asagi singing the "Song of Parting." together with the other four children. When InuYasha reveals his plan to confront the Four War Gods, Asagi begs him to reconsider, saying they'll all be killed. The gang learns that Asagi is going to sacrifice herself to the Cauldron of Resonance, and she argues that her death will allow the others to live a little longer. They all follow Asagi to the Cauldron, where InuYasha attempts to destroy the Cauldron with no success. Suddenly, he and Asagi are pulled into the Cauldron as it closes. On the outside, the rest of the gang and the children try to open the doors, while on the inside, InuYasha feels his strength waning. Then, Lady Kanade, the priestess who fought the Four War Gods fifty years ago, appears and lends her strength to InuYasha, along with the War Gods' power spheres, telling him to destroy it as soon as possible, and that it must never be opened. In return, she asks InuYasha to save the children, then gives her blessing to Asagi before she disappears. InuYasha calls upon Adamant Barrage and destroys the door to the Cauldron, accidentally breaking Kagome's bow in the process.
Just then, a Kikyo look-alike appears and takes the power spheres from InuYasha. He chases her to the War Gods, where she opens the box, releasing the spheres to their owners. While Kagome, Shippo and the children attempt to make a raft to escape, the Kikyo doppelganger attacks InuYasha. At the Cauldron of Resonance, Sesshomaru appears and finds Kyura waiting for him. Sesshomaru easily defeats him with another Dragon Strike. Meanwhile, Sango and Miroku fly on Kirara to confront Jura and the resurrected Gora. Using his Wind Tunnel, Miroku redirects Gora's blasts so that it hits Jura, before Sango finishes him off with Hiraikotsu.
Meanwhile, InuYasha battles with the Kikyo doppelganger and is about to lose when the true Kikyo appears and defeats the impostor, then leaves her bow behind. InuYasha finds Ryura attacking Kagome and the children, and kills him with his Backlash Wave. With only Gora remaining, Miroku spears Gora's head with his staff, greatly weakening it. With a combination of Sango's Hiraikotsu and InuYasha's Wind Scar, they kill the last War God.
However, the battle does not end here; all the power spheres combine to create one final War God who seems unstoppable. Kagome knows only a combination of her sacred arrow and InuYasha's Adament Backlast Wave can destroy it, but she cannot fight because her bow was broken. However, the fireflies (spirits of the island residents who had been previously sacrificed) lead the children to Kikyo's bow, and they bring it to Kagome. Finally, with the fireflies' blessing, InuYasha unleashes his Adamant Backlash Wave (Kongobakuryaha) which combines with Kagome's arrow to defeat the War Gods. As the gang and the children leave the island, it crumbles into the ocean, putting the myth of Horai Island to rest.
As the credits roll, it is indicated that the children spend some time with the gang at Kaede's village before departing as a group of six to face the world by themselves.
