Episode 67

Sesshomaru turns down Kagura's offer, being uninterested in the Sacred Jewel. Enraged, she flees further away from the castle. InuYasha and his friends, with Koga, follow her. Koga battles her again, but gets beaten again. InuYasha intervenes just in time to save him. As the dawn breaks, he prepares to fight Kagura, who flees after seeing him destroy many demons send to her help by Naraku. Kagura return to the castle, where Naraku threatens her to submission. Despite that, she first realise that Naraku is "only" half-demon, then decides to keep secret, as her trump card, the fact that she saw InuYasha in his human form.

Trivia

 * The scene where Inuyasha is getting more cautious about his secret, his claws were replaced with human fingernails.
 * This is the first time one of Naraku's incarnations seen Inuyasha in his mortal state.