When the Demon Sorcerers were banished by the Eight Immortals, traces of their chi were left in the items used by the Immortals. So when the "bad chi" stars aligned, the items used by the Eight Immortals activated, and someone would become imbued with the power of the respective demon sealed away.
When demon chi is absorbed, the host slowly transforms into the demon itself but leaving minor changes, this is explained when Jade absorbed the wind chi.
The hunt for the Demon Chi serves as the primary focus of Season 5.
Drago, the son of Shendu, broke out of Section 13 to find the Immortal items and absorb the powers of his demon aunts and uncles. After breaking free, Drago recruited his father's former Enforcers; Finn, Ratso and Chow, empowering them each with a portion of his own Fire Demon Chi. Their first task was to retrieve the fan of Zhongli Quan from a local carwash, but because they were defeated so easily, Drago fired them before reabsorbing the Fire Chi he had previously endowed them.
Later, following a botched raid on Section 13, Drago came to realize that he required an entourage of henchmen (at one point even expressing regret over his decision to fire the Enforcers), and proceeded to recruit the Ice Crew; StrikeMaster Ice, MC Cobra and DJ Fist, empowering them each with yet another portion of his Fire Demon Chi, continuing to employ their services throughout the rest of the series.
In the finale, Drago manages to absorb all seven demon chi, thus making them irremovable. He gives his henchmen another 'taste' of demon chi, wind, earth and thunder.
- While those who absorb a demon's chi will usually only take on the demon's physiological characteristics, Drago also gained Tso Lan's clothing when he absorbed his chi.
- Humans who absorb a demon's chi may lose some of their humanity as a result, but this depends largely on the demon. Tohru appears to lose all control after becoming the Mountain Demon, but appears to retain his protectiveness towards Jade. Similarly, Miss Hartman still recognizes her role as a teacher and uses her Sky Demon powers to protect Jade, despite becoming more animalistic in nature. Larry also loses himself as the Earth Demon in his desire to become a superhero, but was eventually convinced to give up his powers. All the humans that possessed some aspect of the Fire Demon Chi, as well as Jade and Jackie (with the Wind and Earth Demon Chi respectively) did not show any changes in mindset.