Uchiha Clan Downfall

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

Background
Following the Nine-Tails' attack on Konoha orchestrated by Tobi, Konoha's leadership began to suspect that an Uchiha was behind the attack as the Sharingan is the only remaining means to tame Kurama. According to Tobi, the Uchiha were all forced to live in a corner of the village and kept under surveillance, rekindling the clan's Curse of Hatred as dissent stirs among the Uchiha. Though the Uchiha planning a coup d'état entrusted him to be their spy within the ANBU, underestimating his pacifistic nature, Itachi Uchiha knew that a civil war would result into another Shinobi World War and instead provides Konoha with information on the Uchiha. Though the Third Hokage Hiruzen Sarutobi attempted to achieve a peacefully resolution with the Uchiha, Danzō Shimura convinces Itachi into accepting an order to slaughter his entire clan, promising that his younger brother Sasuke Uchiha would be spared.

The Uchiha clan, however, was not completely blind towards Itachi's double-agent status. They began to suspect him due his strange behaviour since joining the ANBU, having his close friend Shisui Uchiha to keep an eye on him. However, Shisui also attempted to stop his kin with Kotoamatsukami before Danzō Shimura stole his right eye to protect 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 to obtain his Mangekyō Sharingan and loses the Uchiha clan's trust. Regardless, Itachi allowed them to believe that as he becomes more distant from his kin. Even Fugaku Uchiha, the clan head and Itachi's father who defended his son of being accused, seemingly washed his hands of Itachi.

Prior to the massacre, Itachi confronted Tobi, who had infiltrated the village. Believing Tobi to be Madara Uchiha, who was shunned by the clan for causing unrest during the first days of Konoha's formation, Itachi allows him to aid in the slaughter in return to leave Konoha be. It was also during this time that Tobi met with Danzō; the circumstances of this meeting are unknown.

Attack
On the night of the slaughter, with Tobi's help, Itachi proceeds to murder every member of the Uchiha clan until only his parents remaining. Hesitant 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 to 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 as payment for his crime, Itachi used Tsukuyomi on Sasuke 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 shed a tear 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 look out for Sasuke and to never disclose the truth of the events surrounding the massacre. He also added additional protection by threatening to expose the actions of Danzō and Konoha Council if they ever lay a finger 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 huge emotional 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 the fact that the Uchiha clan's actions would have destroyed the village and themselves, Sasuke resolved to destroy Konoha to avenge the tragic lives both he and Itachi led, and to purify the clan's name by severing it's 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. An reincarnated Itachi, upon learning what he knows, asks Naruto not to reveal the truth so that the Uchiha clan name can maintain its honour. Kabuto Yakushi, being a well informed spy, reveals that he too knew the truth.