A Phantom Killer is loose in the city and Gintoki soon finds himself involved in something very related to it.
In an outside stall at night, a drunk Gintoki is told by the owner about a serial killer wandering in the streets. The strange thing about the murders was that the victims appeared fine except for a missing ring of skin around their neck. The killer ends up earning the nickname 'Shinigami'. While stumbling home, Gintoki encounters a Shinigami who wishes to commit seppuku and asks him to be his second. A series of mishaps later leads to Gintoki taking the dead figure to his house so he could cut up and dispose of the body. The shinigami turns out to be very much alive and human, revealing herself to be Ikeda Asaemon. She apologizes for bothering them and leaves. Afterwards, the Yorozuya receives a phone call.
In the morning, Hijikata reaches the scene of a new murder that turns out to have the same m.o as the serial killer. Hijikata admits being impressed by the skill to which Okita states is a technique that only some of the best swordsman can do, cutting the head except for a small patch of skin to keep it connected to the body. They are interrupted by the appearance of the 18th Ikeda Yaemon, part of a family of the official sword testers and executioners, who was brought by Hijikata to find any clues about the killer. Yaemon reveals that the technique used for the murders was unique to the Ikeda clan, a slice so swift and fast that even the cells doesn't realize it's dead. He admits that only two people know the skill, he and his predecessor, but also wandering traitor who killed said predecessor, revealed to be Asaemon.
At night, Asaemon wakes up from a dream where she ritually beheads the predecessor in hiding, but finds herself captured by the Yorozuya. In revenge for touching her sacred mask, she cuts off Gintoki's nipple, to his anger and horror. They take her to the Ikeda mansion where Yaemon waits for them. The Yorozuya is shown around the house including the collection of skeletal heads (plus one certain nipple) while Shinpachi worries for Asaemon believing that they may be punishing her. It turns out they did nothing and in fact she had cooked their meal (full of animal heads ... plus one certain nipple that was just placed back on by Yaemon) as thanks for bringing her back safe and sound.
The head reveals that he was the previous head's son while Asaemon was adopted. The two were trained by him, leading to the two most likely becoming the next head. But it was discovered that the predecessor had in the past freed some criminals slated for execution. In order to make sure the Ikeda name wasn't sullied, it was decided that he should be executed with Asaemon being the second. When his death became public, Asaemon decided to take the blame and paint herself as a traitor, putting on the guise as a shinigami. She was a loyal retainer who loved her clan.
Gintoki, though, deduces that even though Asaemon took the blame for the murders, she wasn't behind them... Yaemon himself was! Yaemon confirms it and adds that the victims were actually the escaped criminals. The murders were done to right the wrong the previous Yaemon committed. Now that Yaemon told the Yorozuya the truth, they must help Asaemon or be the next victims, as one of the escaped criminals was Gintoki himself!!