Uchiha Clan Downfall

The Uchiha Clan Massacre, also called the and the, took place four years before the start of the series in Konohagakure, bringing forth the demise of the Uchiha clan.

Background
Following the Nine-Tails' attack on Konoha orchestrated by Tobi, the idea that an Uchiha was behind the attack as the Sharingan possessed the ability to control the Nine-Tailed Demon Fox begun to spread. , and since the clan suffered relatively small losses, they were looked at with suspicion, a situation similar to the one that led to Naruto's isolation, but apparently not so all encompassing (Sasuke, contrary to Naruto, did not notice any strange behavior towards himself or his family members, nor appeared to have experienced any ostracism or isolation, in fact he seemed to be quite popular since a young age, among both ninja and civilian elements of the population, as the experience with Ino and Sakura demonstrated), as shown in the flashbacks: the warm welcome given to Fugaku and Sasuke in the Academy, Sasuke and Itachi happily walking in front of the Police Station.

According to Tobi, the Uchiha had to live in a large, luxurious estate in a corner of the village, isolated from the rest of the populace. Despite that, it appeared that their movements were not restricted, as they could freely walk around the village, and kept the control of the military police. However, they started to think that this too had been part of a conspiracy from the Senju to keep them isolated and under control, away from the true position of power in the village, that they felt they deserved, and ultimately rekindled the clan's feelings of hatred towards the Senju-influenced government. The Second Hokage would later reveal that this was nothing more than paranoia, as he had intended to give the clan members a way to focus their energies, and the First had even intended for Madara to succeed him (but could not achieve this due to the democratic nature of the village).

Though the Third Hokage Hiruzen Sarutobi, who did not agree with the treatment being dealt to the Uchiha, attempted to achieve a peacefully resolution with the clan, they chose to deceive him and were in fact going behind his back and plotting to plunge the village into a civil war. In planning the coup d'état, they entrusted Itachi Uchiha who was an ANBU, to be their spy. However, a pacifist by nature, Itachi knew that it would result into another Shinobi World War and instead provided Konoha with information on the Uchiha's plans. (it is worth noticing that the Hyuga had been asked, and been willing, to sacrifice a family member in order to spare the village from another conflict with Cloud: the idea of a world scale bloodbath was generally regarded as something to avoid at all costs). Danzō Shimura told Itachi that they should strike first and kill them before they attacked the village and started a civil war.

The Uchiha clan, however, begun to suspect Itachi due to his strange behaviour since joining the ANBU, and asked his close friend Shisui Uchiha to keep an eye on him. However, Shisui was equally appalled by the idea of a coup, which he considered a disproportionate and insane reaction, that would plunge the whole world into chaos, but could not see any way to avoid it: diplomacy had already failed, since the leaders of the clan were already set on deception and betrayal, and went as far as going behind their Kage's back and plot to cause a civil war while putting up a front and officially carrying on negotiations, he could see no other solution than mentally enslaving his kin with his Mangekyō Sharingan's strongest technique, but Danzō Shimura stole his right eye, bent on protecting the village in his own way. Fearing that Danzō would get his remaining eye, Shisui entrusts it to Itachi. Soon after, covering up the nature of Shisui's death as a suicide, Itachi is accused of murder and loses the trust of several of its members. Regardless, Itachi allowed them to believe that as he becomes more distant from his kin. Even Fugaku, the clan's leader, and Itachi's father who defended his son of being accused, seemingly washed his hands of Itachi, unable to understand his son any more.

According to Tobi's recounting to Sasuke, Itachi met with Tobi, whom he believed to be Madara Uchiha. As Madara was ostracised by the clan for causing unrest during the first days of Konoha's formation, Tobi claims that Itachi allowed him to aid in the slaughter in return to leave the rest of Konoha and Sasuke be. It was also during this time that Tobi met with Danzō; the circumstances and content of this meeting are unknown.

Attack
On the night of the slaughter, apparently with Tobi's help, Itachi proceeds to murder every member of the Uchiha clan until only his parents remain. Hesitating before killing them, Itachi learns his parents loved and respected him despite his choice to side with the village over his clan and that their final wish, was for Itachi to take care of Sasuke.

When Sasuke returned that night late from his own training, finding his kin's corpses littering the streets, he finds Itachi standing over their parents' bodies and demands to know what he has done. Intending to have Sasuke kill him, Itachi used Tsukuyomi to make him think that he alone murdered their clan in cold blood. Claiming to have spared him as he was not worth killing, Itachi convinces Sasuke to live a life of vengeance. Sasuke activated his Sharingan for the first time and chased after Itachi, managing to knock off his forehead protector. Itachi wept as he picked it up, before Sasuke falling unconscious and taking his leave. Sasuke was greatly traumatised by the experience and did not remember awakening his Sharingan.

Aftermath
Before leaving Konoha, Itachi asked Hiruzen to protect Sasuke from Danzō and the other two elders Koharu and Homura, and to never disclose the truth of the events surrounding the massacre. He also made it a point to threaten Danzō as well with the threat of leaking information on Konoha to enemy villages, should he ever lay a hand on Sasuke. Soon after leaving, Itachi joined the Akatsuki to keep Konoha safe from the organisation until the day that Sasuke would come looking for him. Aside from Itachi and Konoha's elders knowing the truth, the official story the latter made up was that Itachi turned rogue due to losing faith in the clan.

The attack had a immense psychological effect on Sasuke, who woke up in the hospital with no memories after Itachi's speech and unable to utilise the Sharingan until five years later after becoming a member of Team 7. However, despite feeling that there was more to the event then he knew, it motivated Sasuke to strive to gather enough power to kill Itachi, ultimately leading him to Orochimaru whose guidance enables Sasuke to obtain the means. However, after Itachi's death, Sasuke learns the truth of the massacre from Tobi. Crushed by this revelation, despite that the Uchiha clan's actions would have destroyed the village, themselves and many others beyond village borders, and driven by the his clan's hatred, Sasuke resolved to destroy Konoha to avenge the tragic lives both he and Itachi led, and to purify the clan's name by severing his ties with the village and the "corrupted shinobi world" that shunned it. The drive is furthered when Danzō admits his role in the massacre yet claimed to have no reason to hide it any longer if Sasuke found out the truth.

Tobi later revealed the truth of the Uchiha Massacre to Naruto Uzumaki, Kakashi Hatake, and Yamato. However, with no evidence behind Tobi's words, Kakashi suggested to Naruto and Yamato to keep the information to themselves so as not to hinder Konoha while being rebuilt after Pain's invasion of the village. A reincarnated Itachi, upon learning that Naruto had also come to know the truth, asked him not to reveal the truth so that the Uchiha clan name can maintain its honour. Kabuto Yakushi, being an experienced deep cover agent, revealed that he too knew the truth behind the incident.