More detailed information about the history of Kashima Shinryu can be found in the book "Legacies of the Sword" by Karl Friday. The history below is a summary and may not have the historical accuracy of Karl Friday's research.
The sword style known as Kashima Shinryu (lit. divine school of Kashima) developed during Japan's turbulent medieval period. Records of sword study associated with the Kashima Shrines, located in the provinces north of modern Tokyo, go as far back as the 14th Century (legend takes them back to the 8th Century), and it is said that the Kashima teachings are the core of Budo. The Kashima Shinryu style dates form the early 16th century, and originated with Matsumoto Bizen-no-kami and Kunii Kagetsugu ("Genpachiro").
Matsumoto (1468-1524?) was chief retainer of the Shirakawa Kashima Shrine in modern Fukushima. A distinguished commander, he abandoned his official duties to devote himself to the search for a budo which would embody the unification of thought and action in a perfect homage to the divine spirits of Kashima.
Genhachiro (1477-1543) was 22nd head of the Kunii family, a samurai clan which held lands around Yasukawa castle in the province of Hitachi (now Ibaraki prefecture). He traveled to the Kashima Grand Shrine, where he met Matsumoto and trained together with him, helping to develop the techniques which came to be called Kashima Shinryu.
Between 1477 and 1600, Japan was racked with constant fighting between feudal lords. Takeda Shingen, one of the greatest Samurai generals of the day learned Kashima Shinryu from Kamiizumi Ise-no-kami who fought in his campaigns. Takeda valued him and his ryu highly.
However, Takeda and his allies were vanquished in a series of battles in 1573 against the warlord Tokugawa Ieyasu. As Ieyasu strengehened his grip on the east, the political position of the Kunii family and their allies became increasingly precarious. In 1603, Kunii Yajiro Yoshimasa, the 5th head of the school, fought on the losing side in the decisive battle of Sekigahara. Ieyasu unified Japan and instituted the Shogunate which lasted until 1868.
Because of its association with Takeda and the loyalist cause, Kashima Shinryu was banned by the Tokugawas, and its practitioners were forced into hiding or exile. Although the Kunii family was officially head of the school, the generations following Yoshimasa could not openly practice, and some of the Kunii line did not practice budo at all. The Kunii family withdrew to Fukushima after the advent of the Tokugawa regime, and became yeoman-farmers.
However, the secret techniques of Kashima were kept going by a succession of the masters following Matsumoto. Okuyama Kyugasai, the first master was respected by Ieyasu, and allowed to teach the Shinkage-ryu style. The next master, Ogasawara Genjin was forced to flee to China, returning only after the death of the Shogun.
For the next 200 years the Kashima teachings were covertly passed down the line of master swordsmen associated with the Kunii clan. In the early 19th century, Kunii Taizen, the 34th head of the clan and 12th head of Kashima Shinryu, was the fourth generation of his house to hold a post that involved supervising a shogunal rice storage facility. His role in distributing rice stores to aid the people in time of famine got him fired, and almost got him executed. He was also obliged to renounce his samurai status, and spent the rest of his life as a farmer and inn keeper. Taizen was an active student of Kashima and succeeded as master of the school. From this time on, the Kuniis dedicated themselves to the practice and teaching of Kashima.
A unique point of the teaching was the concept of Muso-ken, "no-thought sword", the tenets of which are reflected in the aphorism:
In sword, no sword - sword becomes one with the body
In body, no body - body becomes one with the Kami (divine spirit)
Like a firefly circling, shining with natural brilliance
No hesitation, no deception, no thought, no barrier...
Kunii Zen'ya (1895 - 1966) was the 18th headmaster of Kashima Shinryu. He studied under several teachers and is credited with re-establishing, revitalising and reconstructing Kashima Shinryu. His mastery was such that he became known as "the modern Musashi" or "the last of the sword-saints".