The Sword of Fate is an ancient magical artifact.
Hundreds of years ago, a ronin asked the legendary swordsmith, Masamune, to make a sword of great mystical powers. Masamune agreed to the task, but it would take an entire year till it's finished. While the blade was being forged, the master's evil-minded apprentice Muramasa forged his own blade for the Ronin. However, when the Ronin drew the blade, he became possessed by the evil spirit of the apprentice, and became the Black Samurai. When Masamune finally finished the sword, he named it the Sword of Fate, and entrusted it to the Green Dragon. The Green Dragon engaged the Black Samurai, in an aerial battle, until the Black Samurai was defeated and imprisoned within the Sword of Doom. The Sword of Doom was than hidden away, while the Green Dragon went to slumber guarding the Sword of Fate until the day when it will be needed once again.
Scooby-Doo! and the Samurai Sword
After Shaggy Rogers and Scooby-Doo lost the Sword of Doom, they were tasked by Matsuhiro to find the Sword of Fate. It was guarded by the Green Dragon in his cave, accessible only by passing through gates of Earth, Air, Fire, and Water. Shaggy and Scooby passed through the four gates, and found themselves in the Green Dragon's grotto. They informed the dragon that the Black Samurai will return soon, and they need his help. The Green Dragon entrusted the Sword of Fate to the duo, and gave them a ride back to Tokyo.
After the Black Samurai was freed, the Green Dragon instructed Shaggy to draw the Sword of Fate. Doing so, the Green Dragon entered the blade, and brought them before the Black Samurai. They took turns wielding the Sword while battling the Black Samurai, until Scooby remembered his samurai training, and severed the Sword of Doom, defeating the Black Samurai, and freeing him from the evil within the blade.
- Incidentally, the fate of the Sword of the Fate is unknown. It's possible the Green Dragon came out and went back to his cave with it.