Katherine Friedman is the daughter of Dr. Ned Friedman, a scientist linked to Friedman Enterprises. Her father conducted illegal genetic experiments and biotechnology research, using a remnant called the Bone of the Demon obtained from a prior defeat, aiming to recreate demonic entities known as the Evil Gods. Katherine was kidnapped by Professor Bucky-Wise, who used her captivity to coerce her father into continuing this work, harnessing Ned Friedman's expertise for Bucky-Wise's own plan to break the seal on the Evil Gods.

Imprisoned at Friedman Enterprises' headquarters, Katherine psychically communicated with Ryu Hayabusa, sending him visions pleading for rescue. These visions spurred Ryu to infiltrate the facility. In the climax, Bucky-Wise betrayed and murdered Ned Friedman in front of Katherine once he deemed the scientist no longer useful. Following her father's death and Bucky-Wise's subsequent defeat by Ryu Hayabusa, Katherine was freed. However, she retained the Demon Bone artifact, leading to her possession by its evil influence shortly after liberation.