The Tenshin Shōden Katori Shintō-ryū (天真正伝香取神道流) included iaijutsu (居合術) in its curriculum in 15th century. The first schools dedicated exclusively to sword drawing appeared some time during the late 16th or early 17th century.
Hayashizaki Jinsuke Minamoto no Shigenobu (林崎甚助重信) (1546–1621) is generally credited with as being the originator of the first dedicated school of sword drawing. Little is known of his life - leading some scholars to doubt his historical existence as a real person. The two largest schools of sword drawing that are practised today are the Musō Shinden-ryū (夢想神伝流) and Musō Jikiden Eishin-ryū (無雙直傳英信流). Both schools trace their lineage to Hayashizaki Jinsuke Shigenobu.
Before Nakayama Hakudo (1873?-1958) coined the word iaido, early in the 20th century, various other names such as battō, battōjutsu, or saya no uchi were used.
Iaido is the usual term to refer to the modern self improvement oriented form taught by the All Japan Kendo Federation (AJKF), while Iaijutsu is used for some amongst the older koryū, combative, techniques.
Seitei Iaido: Seitei_Iaido (制定) is the iaido style of the All Japan Kendo Federation (AJKF, Zen Nippon Kendo Renmei or ZNKR). The twelve Seitei iaido forms seitei-gata are now standardised for the tuition, promotion and propagation of iaido within the kendo federations.
Although not all dojo teach seitei iaido, the AJKF uses them as a standard for their exams and shiai. As a result, seitei iaido has become the most widely recognised form of iaido in Japan and the rest of the world.
Classical period-Iai: Although there are a wide range of koryū or classical iaido styles, practiced in Japan, the two most popular classical styles of iaido practiced worldwide are Musō Jikiden Eishin-ryū and Musō Shinden-ryū. They resemble each other quite strongly because they branched off from one style sometime in the 18th century, under Oguro Motouemon Kiyakatsu sensei. After Oguro, there came into being two branches that were formed on philosophical differences between two students of Oguro: The Shimomura-ha and Tanimura-ha (branches), the former being headed by Maysuyori Teisuke Hisanari and the latter by Matsuyoshi Teisuke (Shinsuke) Hisanari, who became the 12th sōke.
These two branches would co-exist for many years until Musō Jikiden Eishin-ryū officially came into being in the early 20th century through the initiative of Oe Masamichi Shikei, the 17th headmaster of the Jikiden Eishin-ryū. Oe would bring together the Tanimura-ha, Hasegawa Eishin-ryū and the Ōmori-ryū to form what is today's Musō Jikiden Eishin-ryū.
The Shimomura-ha held its own headmasters and philosophy for many years but would eventually fade away. The last Shimomura-ha (claimed) headmaster, Nakayama Hakudo who is considered the 16th, created a new iai-art called Musō Shinden Battōjutsu that was heavily influenced by his Shimomura-ha training, but also took elements from other iai-arts. Nakayama Hakudo is not known to have taught the "pure" Shimomura-ha teachings in its complete form to any of his students and thus it can be argued that Shimomura-ha no longer exists as a separate entity, even though elements of it remain in what would later become the modern Musō Shinden-ryū.
One of the differences between the two schools can be seen in the nōtō (sheathing the katana back in the saya). In Musō Shinden, nōtō is done on the horizontal plane, the blade parallel to the floor. In Jikiden, the blade is perpendicular to the floor in a more or less vertical plane.
Another style of iaido is Mugai-ryū. Mugai-ryū was once one of the more famous styles in Japan in the Edo-jidai and was developed from a strong influence of Zen and is characterized by short, direct movements. Chiburi, for example, is performed with a much smaller movement than in other styles, and is not used at all in suwari waza [Goyo and Goka kata sets]. As it was developed in 1697 by Tsuji Gettan Sukemochi [or Sukeshige], a Zen practitioner, it has deep links with Zen buddhism.
The original style created by Gettan was a kenjutsu school rather than iai. Today's Mugai-ryu Iaido was established by Takahashi Hachisuke Mitsusuke and his younger brother Hidezu in mid Edo-period. They studied a style called Jikyo-ryu under the fifth and last generation headmasters Yamamura Masashige. In advanced waza, called Naiden and attributed to Gettan himself, the focus is on techniques that neutralize the sakki [killing mood] of the opponent, rather than kill him. There are several distinct lineages of Mugai-ryū throughout Japan today. The last sōke of the main line was Nakagawa Shiryo Shinichi who did not appoint a successor upon his death in 1984. There have been several popular movies made featuring Mugai ryu, including Kurosawa's last film project, "Ame Agaru."
There are several branches of Musō Jikiden Eishin-ryū (MJER) that are practised today. Different Iaido organisations generally recognise different people as their sōke. One person who is considered to be a sōke is Miura Takeyuki Hidefusa, who holds a 9th Dan in MJER. The All Japan Iaido Federation (Dai Nippon Iaido Renmei) recognises Ajisai Hirai (9th Dan Hanshi) as the 22nd sōke of MJER.
There are several lines of transmission extant for Musō Shinden-ryū also. One of them claims Mitsuzuka Takeshi as the sōke, second one (those who are affiliated with Nippon Iaido Kyokai) regard Takada Gakudō as their head teacher.
In the All Japan Kendo Federation (AJKF) or Zen Nippon Kendo Renmei, there are two lines representing the Musō school. The current sōke for Musō Jikiden Eishin-ryū is Fukui Torao (21st master), and the last sōke for Musō Shinden-ryū was Nakayama Hakudo with no official successor.
Modern Iai/batto: A newer style of iaijutsu is Toyama-ryū battōjutsu. This is a style originating in the late 19th century, and taught primarily to officers in the Second World War. It is different from the older styles primarily in that all techniques are performed from a standing position.
Toyama-ryū was in turn the basis of Nakamura-ryū, created by Nakamura Taizaburo; incorporating nōtō and kamae from older Koryū, notably Ōmori-ryū. It has been a long time since any differing schools have competed using shinken (sharp blades); hence it cannot be said that the traditional schools are superior to the modern schools, or vice versa, in the ultimate test.