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Shangri-la was a village located in what was sometimes called the Valley of Lies. It was a haven for those with bounties on their heads who wanted to live their lives without worrying about being pursued by bounty hunters. To achieve this, villagers used the Transformation Technique to change their appearance and avoided thinking about or even discussing the past. There were few enough villagers that everyone knew everyone else - a useful way of identifying visitors and therefore possible threats - but nobody knew what anyone looked like without the Transformation Technique.

In addition to the villagers' methods of concealing their own identities, Shangri-la itself was built to avoid notice. The village was built in a cave in the side of a mountain, the village's structures being carved from the mountain itself; because the cave had been expanded in order to accommodate the village, a large tree was planted in its center to support the mountain's weight. No roads led to the village in order to avoid attention, meaning villagers had to scale the mountain on their own. A nearby river created a natural aroma throughout the area that the villagers used as a medium for genjutsu, rendering Shangri-la invisible to anyone affected by it. The genjutsu was quite complicated, requiring that several villagers constantly weave the hand seals needed to maintain it.

Shangri-la was eventually found by the bounty-hunter Kakuzu and his partner, Hidan, with help from Shangri-la resident Ameyuki. Kakuzu and Hidan killed many of the villagers in order to collect the bounties, but it was Ameyuki who ultimately destroyed the village: he used Mud Release: Landslide to collapse the mountain upon the village, killing everyone as a sacrifice to Jashin.