Following the Nine-Tails' attack on Konoha, Konoha's leadership began to suspect that an Uchiha was behind the attack due to the Sharingan's ability to control the Nine-Tails. From that point onwards, the Uchiha were placed under close surveillance, something Tobi claims was accomplished by forcing all Uchiha to live in a corner of the village. This mistrust and isolation from the rest of the village created feelings of ill-will amongst the Uchiha, and ultimately rekindled the hatred towards the Senju-influenced government. As such, the Uchiha, led by Fugaku Uchiha, began planning a coup d'état to overthrow the Konoha leadership.
In preparation for the coup, the Uchiha started inserting its member within Konoha's command structure to act as spies; Itachi Uchiha was placed in the Anbu, the direct arm of the Hokage, but Itachi did not agree with the Uchiha's plans, believing the coup would only escalate into another Shinobi World War. As such, he turned double-agent, providing Konoha with information on the Uchiha's plans. The Third Hokage, who had not agreed with the treatment of the Uchiha following the Nine-Tails' attack, tried to find a peaceful resolution with the clan. Danzō Shimura, however, did not believe negotiations would solve anything and felt eliminating all the Uchiha would cause the least bloodshed.
The Uchiha noticed Itachi's strange behavior and tasked Shisui Uchiha with keeping an eye on him. Shisui, a close friend of Itachi, shared his opposition to the coup. When peace talks started to break down, Shisui attempted to use his Mangekyō Sharingan's Kotoamatsukami to force the Uchiha's leaders to change their minds. Danzō felt this was a waste of Kotoamatsukami's rare usage and took Shisui's right eye for himself before Shisui had a chance to use it. Having failed and fearful that Danzō would take his other eye, too, Shisui entrusted his left eye to Itachi before committing suicide. After finding his body, the Uchiha believed Shisui had, in fact, been murdered by Itachi and the suicide was staged, and, as such, no longer trusted him.
Although he still wanted to find a non-violent solution, Shisui's death convinced Itachi that events could no longer be stopped. He became outwardly critical of the clan's actions and hostile towards individual members. Danzō, aware of Itachi's conflicted feelings, explained the two possible outcomes: the Uchiha could be allowed to carry out their coup, an act that would ultimately lead to the entire clan's extermination, including Itachi and his younger brother, Sasuke Uchiha; alternatively, Itachi could assassinate the Uchiha before the coup took place, and in exchange would be allowed to spare Sasuke's life. Itachi opted to save his brother.
Before carrying out the massacre, Itachi found Tobi sneaking around the village. Believing he was Madara Uchiha bent on destroying Konoha, Itachi offered to help him take revenge against the Uchiha for betraying him decades earlier if he would spare the village. Tobi agreed, and also met with Danzō around the same time for unknown purposes.
In the anime, Hiruzen and Danzō attempted to take matters into their own hands and use their Anbu to strike preemptively and restrain the Uchiha. However, by the time they arrived, the Uchiha District was littered with corpses.
In a single night, Itachi and Tobi slaughtered the entire Uchiha clan. In the anime, Tobi secretly took some of the Uchiha's corpses for himself. Itachi took it upon himself to kill his parents, an act he hesitated to carry out. Both respected his decision to side with the village over the clan, and asked only that he look after Sasuke. He tearfully killed them just before Sasuke returned home from the Academy.
Although he knew his actions were necessary, Itachi could not forgive himself for killing his own family and believed he had to be punished. Sasuke, a child and thus ignorant of the Uchiha's conspiracies, was the only person qualified to pass the judgment on Itachi he felt he deserved. As such, Itachi attacked Sasuke when he entered their house, desperate to make Sasuke believe he had killed their clan without provocation and for selfish pursuits of power. He used Tsukuyomi to torment Sasuke with images of the clan's murder and claimed Sasuke was too weak to even bother killing. Itachi encouraged Sasuke to get stronger and to come after him to avenge their family.
As Itachi left, Sasuke made an immediate attempt to follow Itachi's instructions; awakening his Sharingan for the first time, Sasuke pursued Itachi and attacked him, managing to knock off his forehead protector. Itachi wept from Sasuke's action, but continued on after collecting his forehead protector. Sasuke passed out from the traumas of the night and would not remember this moment of retaliation for many years.
Only three Uchiha survived the clan's massacre: Itachi, Sasuke, and Tobi, though most of the world, Sasuke included, did not know of Tobi's involvement or survival. Itachi reported the mission's success to the Third Hokage. The Third, having been unaware of Itachi's assignment from Danzō, regretted to hear the news. With nothing to be done about it now, the Third promised to perpetuate the cover story that Itachi had acted alone and without cause so that nobody would learn of Uchiha's plans, and also so that Konoha would not be tarnished for its involvement. Most important to Itachi, the Third vowed to keep Sasuke safe from Danzō. Itachi then left the village, joining Tobi's organisation, Akatsuki, in order to reinforce his image as a criminal. In actuality, he monitored Akatsuki from the inside, keeping Konoha informed of its actions and preventing the organisation from moving against the village.
True to Itachi's intentions, the Uchiha's massacre had an immense impact on Sasuke. Sasuke's sole motivation over the following years was to become strong enough to kill Itachi, first by training as a shinobi of Konoha and later, after being dissatisfied by his slow growth in Konoha, by defecting to Orochimaru. Under Orochimaru, Sasuke gained enough power to finally pose a threat to Itachi, culminating in Itachi's death when they finally met in battle. Sasuke was very briefly able to revel in his victory until Tobi, who had waited until Itachi's death to approach the boy, revealed to him the truth behind Itachi's actions. After realising that Itachi only ever acted in the interests of his village, Sasuke decided to destroy Konoha for what they did to his brother. However, after reconciling with a reincarnated Itachi, Sasuke decided that this would be contradictory to what Itachi sacrificed his life for and that he would instead protect the village.
The truth of the Uchiha clan's downfall was successfully kept a secret for many years, though Kabuto Yakushi, an experienced information gatherer, was able to discover it at some point. After Itachi's death, however, Tobi no longer felt obligated to keep up the cover story and shared the truth when he deemed it convenient; he first tells the truth to Sasuke in order to win his cooperation, and later to Naruto Uzumaki, Kakashi Hatake, and Yamato in order to defend Sasuke's actions. Upon his reincarnation and learning that the truth has been revealed, Itachi insists that those who know do not publicise it so that the Uchiha clan may retain some honour.
- ↑ 1.0 1.1 Chapter 474, page 12
- ↑ 2.0 2.1 Chapter 399, page 16
- ↑ Chapter 400, pages 1-8
- ↑ Chapter 590, pages 5-6
- ↑ Chapter 222, pages 2-10
- ↑ Chapter 223, pages 5-15
- ↑ Chapter 590, pages 8-10
- ↑ Chapter 400, pages 8-9
- ↑ Chapter 590, page 13
- ↑ Chapter 403, pages 10-14
- ↑ Chapter 400, pages 13-15
- ↑ Chapter 401, page 6
- ↑ Chapters 399-401
- ↑ Chapter 401, page 17
- ↑ Chapter 581, page 2
- ↑ Chapter 470, page 4
- ↑ Chapter 549, page 10