Natsume encounters some strange, monkey-mask wearing demons while out in a forest. They want the book of friends, and start physically threatening him until Natsume is saved by Nyanko-Sensei. Later on, Natsume encounters the demons again and is captured by them, and brought to their forest. Meanwhile, Nyanko-sensei learns some interesting things about the forest the monkey mask demons live in. Running away from the demons, Natsume and Nyanko-sensei are unintentionally saved by an exorcist - Matoba! Not wanting to confront him, Natsume runs again but gets lost in the woods, and stumbles upon a house... belonging to the Matoba. Both he and Nyanko-sensei are captured, but manages to escape and find each other, though being lost in the house. The episode ends with Matoba finding Natsume saying, "It's been a long time, Natsume Takashi-kun.

Natsume and Matoba talk, but when the conversation doesn't go the way he wants, Matoba orders Natsume to be put in a cell. Natsume escapes with the help of Nyanko-sensei. Along with his other demon companions, Natsume helps the monkey-masked demons living in the forest.

Natsume befriends a small fluffball youkai.

Yobiko, a youkai that can imitate the voices of others, sneaks into Natsumes' house and asks him to call out another youkai named Karikami. Long ago, Yobiko had been watching over a woman named Youko who was meeting with a man at a nearby shrine. One day the man stopped coming, due to an arranged marriage to another woman, so Yobiko decided to use his talent to talk to the girl. Eventually, he told her the truth about the man and ran away. When he came back to the shrine many years later, he found an old letter that had been sealed shut and wrinkled. Natsume and Yobiko later meet Karikami and after returning his name, Karikami restores the letter. Unable to read human letters, Yobiko asks Natsume to read it to him. Instead of a hateful message he was expecting, it is actually a letter of thanks for telling her the truth.

In the town Natsume used to live in, a girl recalls Natsume. She remembers his strange actions and wanted to understand him. Meanwhile, Natsume encounters a small Youkai which reminds him of the same girl and town.

Natsume is trapped in a bottle by a youkai to be offered to another named Omibashira. Nyanko-sensei transforms into Natsume and goes around his school to ask his friends about Omibashira, but gets Tanuma involved. Tanuma is attacked by one of the youkai that trapped Natsume and loses him, but as he runs through the forest looking for Natsume he finds a mansion behind the school. When Tanuma is suddenly able to see the youkai walking up the steps to the mansion, he is found out by a youkai with a bag over its head.

Natsume is saved by Tanuma and the two escape from the banquet hall with the help of Natori, who was disguised as a youkai. Tanuma is drawn more into the world of the youkai and experiences it first-hand, which greatly worries Natsume. Blood marks are found all around the mansion and Natsume's fears come true when Tanuma is attacked by Omibashira, but is protected by a stone Natori gave him. After Natsume helps Natori seal Omibashira everyone is able to escape the previously sealed exits. Promising Tanuma that he'd tell him his complaints at school the next day, Natsume finally arrives back home.

Nyanko-sensei falls into a well and discovers that there is a barrier inside it, as well as Nanase, Matoba's assistant. She is looking for a certain stone with a youkai she had sealed in it, and tells Nyanko-sensei the story of how she met the youkai to pass the time.

Natori is tasked with the job of finding and breaking the seal of Houzukigami, a god that was to participate in the Moon-Splitting Festival done every 10 years against Fuzukigami, another god. The festival is used by the youkai around the mountains to determine whether the harvest would be bountiful that year or not. Without Houzukigami, the match would end in a default win for Fuzukigami, causing the land to become barren. Natori tries to find the seal but is surprised to find Natsume at the festival disguised as Houzukigami, having been asked by Houzukigami's servants to stand in for their god. The match to be the winner is to catch a beast that was released from a pot.

Houzukigami's servants tell Natsume to look for the real Houzukigami while they track down the beast. Joined by Natori, Hiiragi, Nyanko-sensei, and one of the servants, they look in a building by a waterfall. The beast suddenly appears and Natsume and Hiiragi are knocked off the deck of the building. After recuperating from being dragged down the river, they try to run back to the building but are caught in a trap by Fuzukigami's servants which was meant for the beast. While unconscious, one of the servants is able to pick up a human scent from "Houzukigami", making them wonder if it's truly the god or not.

Natsume is pretending to be the god Houzukigami, so the moon splitting festival will end with a victory and the mountain will not be ruined. Winning the contest will not be easy, but with help from Natori he will find the way.

Natsume, accompanied by Nyanko-sensei, set out to visit his old home. He visits a relative to pick up the key to the house, but is being followed by a youkai who wants him to draw a mouth for it. He leads the youkai away from the home of his relatives and Nyanko-sensei drives it away. When the two get back on track to finding the house, Natsume is suddenly attacked by the youkai and becomes lost in old memories.

Natsume, possessed by the youkai, thinks of an painful incident from his childhood involving the family he was living with at the time. The youkai offers to eat all his memories, so that he will no longer have to relive his pain.