Tobias once said her name was supposed to be Kitsune, and she would be Shang Tsung's daughter, but they decided to scrap the name since Shang Tsung's name is chinese, and Kitsune is japanese.
Later in production, Shao Kahn came into play as her father with yet another chinese name, and in order to make her name "generically asian" they went for a mashup of the words Kitsune and Katana (which was a second considered name, but also japanese in origin), and that's how she became Kitana.