Princess Eilonwy and Taran found Dyrnwyn in a tomb of the dead, during their escape from Spiral Castle. The body of a long-dead king held the sheathed blade. The sword's removal caused the castle to collapse.
Dyrnwyn had jewels studding its hilt and pommel, and a battered scabbard nearly black with age. Eilonwy noted that there was a "symbol of power" on the scabbard, a mark more potent than any Achren could have made, indicating a forbidden object. Entwined about the hilt and scabbard was an inscription in the Old Writing, much of which had been scratched away. When made clear by magical means, such as Eilonwy's bauble, the inscription read:
"Draw Dyrnwyn, only those of noble worth [sometimes mistranslated royal blood], to rule with justice, to strike down evil. Who wields it in good cause shall slay even the lord of death."
Eilonwy bore the weapon, undrawn, from its finding until the confrontation with the Horned King at Caer Dathyl, at which point Taran attempted to draw the blade. However, according to its inscription the sword could be dangerous to those it deemed unworthy of its power or not yet ready for it, either refusing to be drawn or burning the wielder. Taran tried desperately to free the blade from its sheathe but was only partly successful and had his arm badly scorched in the bargain. Yet the evil war leader was distracted at a crucial moment, allowing his destruction by Gwydion.
Gwydion then bore Dyrnwyn until Arawn stole the weapon through deception and an ambush. It was later rediscovered by Taran at the top of Mount Dragon. The blade's enchantment made it deadly to even the deathless Cauldron-Born; with it later Taran even slew Arawn Death-Lord himself. After this the white flame on Dyrnwyn was quenched, and it became an ordinary sword.
In the story "The Sword", it is revealed that King Rhitta, who had once ruled Prydain from Spiral Castle, was the last to wield the enchanted weapon. His coldness and lack of empathy for the suffering of his subjects caused the scabbard (and presumably the blade within) to blacken and stain. Rhitta even stooped so low as to strike a defenseless man, the common farmer Amrys, dead with its edge. Eventually the sword refused the King's hand, deeming hism unworthy to draw it. The ghost of Amrys haunted Rhitta, and at last when the raging king forced the blade free, its power struck him and his guards dead. King Rhitta lay as he fell, for he had bored mazelinke tunnels below his castle to escape the ghost, and his servants never found him. (Many years later, Taran and Eilonwy found Rhitta and his guards so entombed.)
In the Disney movie, Dyrnwyn is presented as "the Magic Sword". During Taran and Eilonwy's escape from the Horned King's dungeons, they stumble upon the tomb of King Rhitta, whereupon Taran finds the sword, beleiving the king to have been a great warrior. The sword is first used when a guard attacks Taran, melting his axe. The sword plays a role in their escape from the castle; Taran uses it to disarm guards, flood a room with the guard's brandy, and sever the chain that holds the drawbridge shut.
Taran continually wears the sword in its scabbard during the meeting with the Fair Folk, and is forced to use it upon meeting Orddu, Orwen, and Orgoch when they attempt to dissuade him from getting the Black Cauldron. Orddu sees the sword as something she must have, and the companions are forced to trade the sword for the cauldron. The sword returns one last time at the end of the film, when Orwen offers it up as a fair trade for the Cauldron, against Orddu's protests. Taran declines the offer, and trades the Cauldron in exchange for the restoration of Gurgi's life.