Long ago before the founding of the hidden villages, during an era of endless wars between mankind, Kaguya decided that it was necessary for someone to attain god-like powers in order to stop the conflicts. For this reason, she consumed the forbidden fruit from the Shinju, gaining the ability to manipulate powerful chakra and allowing her to single-handedly put an end to all the wars that plagued the lands. When Kaguya gave birth to her son Hagoromo, he inherited the same type of chakra and was able to manipulate the chakra. However the Shinju's desire to reclaim its stolen power caused the tree to assume a monstrous form of what was christened the Ten-Tails.
The furious Ten-Tails rampaged throughout the lands until Kaguya's son defeated and sealed the beast within himself, making him the first jinchūriki. Her son would later teach humanity the concepts of chakra, becoming revered as the Sage of the Six Paths.
Her name and title are likely references to Princess Kaguya, the main character from The Tale of the Bamboo Cutter (竹取物語, Taketori Monogatari), which is said to be one of the oldest Japanese legends in written record. According to the legend, Princess Kaguya wears a hagoromo (羽衣, "feather mantle") when she returns home to her kingdom. The name Ōtsutsuki (大筒木) roughly means "big bamboo tree" and is derived from an obscure passage in the second volume of the Kojiki about the genealogies of Emperor Suinin, eleventh emperor of Japan, which states that he had a consort named Kaguyahime no Mikoto (迦具夜比売命), the daughter of a king named Ōtsutsukitarine no Miko (大筒木垂根王); tradition holds that these individuals served as the basis for Princess Kaguya and the old bamboo cutter in the aforementioned tale.