Board Thread:Episode Discussions/@comment-8284722-20150108141809/@comment-1251315-20150108173212

Sarutobii2 wrote: Hanzo only appeared in a flashback in this episode when Tsunade was talking about Amegakure, but that doesn't necessary mean he's dead yet. Because Tsunade assumes that Hanzo still rules the people of Amegakure, she isn't aware (at that point) that Hanzo is already dead. As stated by Jiraiya in the manga, the city was very heavily controlled and everyone in the surrounding lands had no clue at all what was going on in that city. That is why the leadership of Akatsuki was kept hidden for so long: nobody knew the location of the leader.

It can be assumed that Hanzo died either during Part 1, before the Nine-Tails attack or in the several years between Naruto's birth and the start of the series. We know that Hanzo survived the Third War, because he was around in Minato's era and was also present to give the title of Sannin to Jiraiya, Orochimaru and Tsunade (which he gave in the Second Shinobi War). When the war finished, it's stated that his rule declined and it was during this time (most likely between the end of the war and Kurama's attack on Konoha) that Nagato (using Pain) staged a civil war and killed Hanzo (source: Hanzo's page)

Nagato (through Pain) already ruled in Amegakure at the end of Part 1, through the scene of them convening, which would have already indicated that Hanzo was dead at that point.