Naraku's true body during his weakened phase, which consist in a loathsome blob of Youkai body parts and flesh. He often has them fighting against each other so that he absorb the winner and he is not above Grand Theft Me if he's ever absorbed by one As the Infant can testify. For this reason, he is full of Lovecraftian Super Power, full of Combat Tentacles and other Body Horror; which gets even worse once he becomes a full demon.
He himself lets you fight your loved ones for the sheer enjoyment of Corrupt the Cutie, and is capable of Breaking Speech as well as Mind Rape to force even a saintly priest like Hakushin into giving into his fears and becoming a helper of essentially Satan.
Even his incarnations are this, Goshinki is a red-eyed, purple, people-eating demon that is strong enough to break the Tetsusaiga in one bite and ridiculously fast, but the worst part of him is his mind-reading capabilities, which he can use to drive you to despair by exploiting your inner weaknesses. Others including Kageromaru and Juromaru a parasite and his mindless brute brother, as well as The Infant capable of Mind Rape capable of causing Kagome into a Heroic BSOD. Even Musou, The Blank who can steal your face, capable of absorbing demons and his eventual fate is considered one.
The Cursed Noh Mask, made from a sacred tree imbedded with a Sacred Jewel shard, that feeds on people to gain a body, a blackish one made of absorbed corpses. What makes it worse than most demons after the shards is that it was awoken in the present day by being near its presence. And it goes on a killing spree targeting firemen and policemen as well as driving a FIRE TRUCK into Kagome's house to get the Jewel. Oh and there's not any reverse of the damage it's done yup the people the mask has eaten are gone for good.
Even worse in the manga: no, no more blob body: instead, you see the mask eating some youngsters... then coming back with a huge, fat body made from human flesh and full of limbs and faces. And then it can also chase Kagome almost everywhere, and even when partially broken, it can still move on and kill.
Another cursed mask in the manga bites people's head off. Graphically. The chapter wasn't adapted into the anime for exactly that reason.
The Soul Piper, while a peaceful yokai that helps dead children pass on, if one has a big enough grudge; its eyes open and the soul goes to hell. This almost happens to a one shot character called Mayu until Kagome saves her. What makes it worse that this girl's ghost died in Kagome's time, meaning it'll always exist, and who knows how many children have been sent to hell by this thing. Though it is a case of Good Is Not Nice, as the yokai only drags you to hell if you've become an evil spirit.
Sesshomaru's true form—a red-eyed dog that is as big as a truck. While his regular form is graceful and Bishōnen, his true form is rapid, beastly and constantly drooling acid. The first transformation into it prior the pink smoke is his face turning into a canine face complete with Slasher Smile.
The Curse of the Ink episode, involved an artist who drew hellish demons in order to get what he wanted, but ends up suffering a Family-Unfriendly Death when he is aged to death
In the manga, The living Ink, attracted by the artist's blood, sever his arm and then proceed to devour and melt him like a blob monster.
The entire Gatenmaru arc, showing far you can take Humans Are Bastards and the Super-Powered Evil Side to its extreme before it becomes disturbing, Gatenmaru is your human eating racist moth demon who disguises himself as a human with red lipstick and pink overcoat. Normally this would be a campy villain, except for three things, one that he prefers to eat women alive through his tongue while tasting their despair, while draining them to a husk which disturbs every sane person who watches this; and two he has a disturbing fixation to show how helpless half demons are by sealing Inuyasha in a cocoon in order to have him watch helplessly as he ate the women alive as he mocked him. The third thing is his gang, who all kill an entire village willingly and are not even terrified by how their boss is actually a demon, in fact showed even more zeal in their cruelty after this reveal, made even more disturbing in that they were humans gleefully following a bloodthirsty demon. This leads to Inuyasha giving them all a swift Karmic Death with his Super-Powered Evil Side, who takes things too far as he begins to hunt down every last man in the group, even those running away.
The Worm Demon from Jineji's debut, is Body Horror-eque demon who sends its young to eat, which the villagers blamed Jineji for. Unfortunately, it is unaware of Beware the Nice Ones as the Gentle Giant tears it apart.
The first picture of Sesshomaru obtaining Bakusaiga is, well, frightening◊.
The Snake demon of the Orochi clan who was desperate enough to bite a piece out of Moryomaru's arm: as a result, said piece of flesh bursted from his orifices and then swallowed him up from the inside in a truly horrific manner.
Not all scary things in Inuyasha can be just demons, when Kohaku goes from shy to emotionless killer, a change so sudden that it takes both Kagome and the audience by surprise. Even more disturbing is the Sadistic Choice of Naraku in that if Kohaku remembers killing off his own family he'd likely Go Mad from the Revelation and be Driven to Suicide to escape the guilt. Naraku you bastard
The Maker of the Shikon Jewel Filler involves a radical Jekyll & Hyde involving a bull demon who is actually a half demon priest who turns into a demon at night, which is scary enough except the Dissonant Serenity and subtle build-up to this is very shocking to say the least.
Tsubaki's demon wolf, looking even more deranged than Sesshomaru's true form.
The silhouettes of some of the demons that possessed Onigumo to become Naraku are unsettling to look at in episode 71 of the original anime.
The Nikosen, a tree monster that was once a hermit, capable of regenerating even if you cut off the head. For some reason thankfully, he's cut from the adaptation, especially with the Hellish Pupils he has.
St. Hakushin, an undead priest with Black Eyes of Crazy; his backstory explains that he allowed himself to be Buried Alive only to hit the Despair Event Horizon as he realized that he didn't want to die and that all of the villagers were praying for his death. The Mood Whiplash of Mt. Hakurei transforming from a peaceful mountain to a hellish peak of spikes does not help matters.
To make this even better/worse, what's depicted in Saint Hakushin's backstory is the entirely real, historical practice known as sokushinbutsu - now banned in Japan, for obvious reasons.
When Sesshomaru smells blood and the scent of wolves on the air, and goes looking for the little girl who helped him - and finds her body lying on the woodland floor, face down and empty-eyed. Sure, Rin got better, but that doesn't change the fact that she was mauled to death by wolves.
The Village of Demon Women, sure the Salamander demon is very Narmy in her "water lipstick face" form until she returns to being a rotting salamander; but what she has the women do is very unnerving. She implants eggs to parasite off of them and have them skin men alive.
Princess Aibi's Fire Birds. For one thing, they're white pterodactyl like creatures that ignite at will and an alarming screech, not to mention her mother, Tekkei, who first appears as a realistic looking red eye, later revealing to be a threatening phoenix like creature.
Zushinezumi, a rat demon who eats humans, as well as commands an infinite amount of man-eating mice; when Hakudoshi takes the rats from him, he uses it to eat entire villages. While it's terrifying by itself to be Eaten Alive by rodents, they can also multiply whenever they're cut.
Onigokuki, a demon slave trader who lures children with his flute to be sold to other demons. It's full of Adult Fear of child kidnapping and the implications of slavery.
Hitomiko, a priestess killed by Naraku and brought Back from the Dead to be his fanged puppet, which is scary enough, but then it's revealed that 15 years ago, he once suddenly to her as a little girl with the full intent to kill her just on the chance of being a threat. When that failed he reduced her friends to corpses and killed her master It's a rather jarring action coming from a normally manipulativechess master who only kills to further his ends.
Just when Naraku is finally defeated, The Sacred Jewel decides to seal off Kagome in a pitch black space and the demons that make up Magatsuhi, complete with Voice of the Legion show to stop Inuyasha. It's makes for a rather creepy climax, complete with an eerie soundtrack playing in the background.