It all begins at Tachibana labs where enterprising scientists Masami Eiri and Iwakura Yasou are working on an advanced software system. This system is designed to be an ultimate method of accessing and communicating information across The Wired. Patterned after Ted Nelson's Xanadu Project, the system would provide the capability to access data quickly through a series of hyperlinks. Tachibana, being a hardware company after all, wants to build devices that will help humans in their endeavor to obtain information.
While this is Tachibana's view, Masami Eiri has a different philosophy. He has studied the data regarding the KIDS project and the Schumann Resonance and believes that humans can communicate with the collective unconscious without the aid of devices. Masami is so convinced of the power of this communication ability, he secretly embeds software which allows device-less connection into Tachibana's latest communication protocols.
Tachibana realizes that without devices (i.e. hardware/software) there is no business or market for their products. When they discover that Masami has embedded device-less protocols into their software, they terminate his employment. Masami, however, has mastered the ability to communicate inside the collective unconsciousness, and, having no need of his body, commits "suicide". Masami, believing that he is the first to evolve to the point thinks that he has become a God (the Deus Ex Machina, the God of the Machine), and wants to recruit other humans to join him.
Tachibana, perhaps out of greed or perhaps out of guilt for unleashing Masami's protocols in the Wired, creates a daring counter-measure to combat Masami's influence. This counter-measure is Lain. It is Tachibana's hope that through Lain Masami's protocols can be rewritten. Their feeling is that if software, which normally has no "flesh", can learn the importance of existence on a physical plain, people will be prevented from following Masami into the Wired.
Tachibana, not Masami Eiri, creates Lain, a sophisticated bio-organism or "homologous by artificial ribosome" which can interact in the "real world" as a human being. She is created as a middle-school girl and the Iwakura family is assigned to "raise" her. Later, when Masami confronts Lain, he tries to convince her that he is her creator in a ploy to enlist her to his side.