"InuYasha the Movie 3: Swords of an Honorable Ruler" centers on the origins and significance of the three legendary swords crafted by the demon swordsmith Tōtōsai: Tessaiga, Tenseiga, and Sō'unga. The narrative begins when the malevolent sword Sō'unga, sealed away for centuries, is accidentally unleashed by InuYasha and his companions during a battle with a demon. Sō'unga, a weapon of immense destructive power, seeks to dominate the world and enslave both demons and humans. The sword's release triggers a chain of events that forces InuYasha to confront his own lineage and the legacy of his father, the Great Dog Demon.

As Sō'unga begins its rampage, InuYasha, Kagome, Miroku, Sango, and Shippō must work together to stop its chaos. The sword's influence grows stronger as it manipulates demons and humans alike, drawing power from their hatred and fear. InuYasha wields Tessaiga, the sword of destruction, while his half-brother Sesshōmaru wields Tenseiga, the sword of life. The two brothers, often at odds, are forced to unite against the greater threat posed by Sō'unga. Their father's wisdom and the true purpose of the swords are revealed through flashbacks, highlighting the balance between destruction and creation, life and death.

The climax of the story involves a fierce battle between InuYasha, Sesshōmaru, and Sō'unga, which tests their resolve and understanding of their father's intentions. The brothers must overcome their differences and combine the powers of Tessaiga and Tenseiga to defeat Sō'unga and restore balance. The resolution underscores the themes of legacy, responsibility, and the duality of power, as InuYasha and Sesshōmaru come to terms with their roles as inheritors of their father's will. The film concludes with the swords returning to their rightful places, ensuring the world remains safe from Sō'unga's tyranny.