As a human nobleman Kain was murdered by brigands; impaled upon the Iron Sword. In the underworld Mortanius the Necromancer removed the sword from Kain's soul and symbolically handed it to him transforming Kain into a vampire. Following his resurrection, Kain wielded the sword in the hunt for his assassins, carrying it with him throughout his quest to decimate the circle and restore balance. Like his other weapons, Kain stopped using the Iron Sword once he acquired the Soul Reaver. It is unknown what happened to it afterwards.
The Iron Sword may have been Kain's own sword rather than his assassin's. Kain demonstrates knowledge of the blade's history, claims that it served him well in life and its image can been seen painted on the floor of a blacksmiths shop in Kain's home town of Coorhagen.
In the general gameplay of Blood Omen, both the Iron Sword and its accompanying Iron Armor are quickly replaced by more exotic and powerful weapons and armor; however in Blood Omen FMV cutscenes Kain is only ever shown with the Iron Sword and Armor combination, regardless of his current armor or weapon..
Some fans have theorized that Vorador (creator of the Soul Reaver blade) may have been a former member of the Serioli and could therefore have been responsible for the forging of the Iron Sword as well as the Soul Reaver blade.