Yume no Kochō

The is a mystical entity with unique powers.

History
Sometime in her past, Setsuna was cursed by the Yume no Kochō to be unable to sleep or dream and had her memories of her past erased, including her own twin-sister Towa. Now, Towa, Setsuna and Moroha go on a quest to capture the Yume no Kochō and undo Setsuna's curse.

It was later seen circling a comatose Rin in the Goshinboku as the Spirit observes her with Sesshōmaru.

On the night of the new moon, Towa did spot the Dream Butterfly from her dream and tried to catch it but it was too late.

When Setsuna had been murdered by Kirinmaru, she started to get a little sleepy that she gets her dreams and memories are coming back that the curse has been broken, she even calls Towa "Sis", as the Dream Butterfly returns to her head as her final words, "Good night sis".

After Setsuna had been dispatched, Towa saw the Dream Butterfly again while she was trying to use the Tenseiga to resurrect her.

Physical Description
The Butterfly of Dreams is unique compared to normal butterfly, not only for its colors but the "tails" extending from its lower wings. The upper wings are outlined black with colors of indigo and magenta while the lower wings are black with pale pink. The body is similarly magenta while the eyes are green.

In the second season's premiere, the Dream Butterfly's true form and colors are finally revealed: A pale green-and-yellow hue as opposed to purple-and-pink. This could be a reference to it cursing young Setsuna after it began transferring her sleep and girlhood memories to ensure the safety of her teenage mother Rin.

Powers & Abilities

 * Curse: The Yume no Kochō has the ability to curse its victims by "eating their dreams and memories", taking away their ability to sleep and even also prevent hanyō losing their demonic power during the new moon phase.
 * Dream World Passage: The Yume no Kochō landing on the mark of the Sacred Tree of Ages, since Kikyō had shot Inuyasha, has the power to enter and exit the immaterial world of dreams as it sees fit.

Season One

 * Episode 3 (Hanyō no Yashahime)
 * Episode 4 (Hanyō no Yashahime)
 * Episode 5 (Hanyō no Yashahime)
 * Episode 8 (Hanyō no Yashahime)
 * Episode 17 (Hanyō no Yashahime)
 * Episode 18 (Hanyō no Yashahime)
 * Episode 21 (Hanyō no Yashahime)
 * Episode 22 (Hanyō no Yashahime)
 * Episode 24 (Hanyō no Yashahime)

Season Two

 * Episode 25 (Hanyō no Yashahime)
 * Episode 27 (Hanyō no Yashahime)

Trivia

 * The curse is stated to be breakable if Kirinmaru perished.
 * It's likely the Dream Butterfly takes the most precious memories of its victim; hence why Setsuna does not remember Towa.
 * According to the November 2021 issue of Animedia, even after being resurrected, the Dream Butterfly's curse doesn't disappear. The only way for Setsuna to sleep properly is for the issue with the butterfly to be dealt with.