In the Akatsuki hideout Sasuke comes face to face with Madara. Announcing himself as Itach's accomplice from that fateful night, Madara goes on to tell Sasuke the truth about Itachi that he could never have known. Seeking to gain Sasuke's trust, Madara reveals to him the origins of the Hidden Leaf village. Madara and the future First Hokage founded the village long ago, but a rivalry between them would one day stem a chain of events leading to that night, the night that Itachi Uchiha annihilated the Uchiha Clan.
Years before, the Uchiha constantly clashed with the equally powerful Senju clan. To bring an end to the constant fighting, the leader of the Senju, Hashirama Senju, approached the Uchiha with an offering of peace. Although Madara never wanted peace with the Senju, the rest of the Uchiha wanted to end the fighting, and Madara had no choice but to go along with their decision. The Senju, the Uchiha, and all the clans they had conquered came together to form the Hidden Leaf village. Against Madara's wishes, the villagers selected Hashirama as the village's First Hokage. Madara feared that Hashirama would oppress the Uchiha, and tried to rally support for challenging his leadership. Rather than help him, however, the Uchiha turned their backs on him, believing his only motives were due to pride and the desire for more power.
Abandoned by his clan, Madara left the village, later returning in order to challenge Hashirama in battle. They fought at the site that would someday be called the Final Valley, where, although Madara called upon the Nine-Tailed Demon Fox, he was defeated, and was believed to have died. Madara had faded into memory. Time passed, the Nine-Tailed Demon Fox appeared again, which put suspicion to the Uchiha clan because the only way it can be tamed and controlled is with their ocular powers. Thinking it was a revolt to gain power, the Uchiha clan were put under strict surveillance under the Anbu Black Ops. Unfortunately, discrimination began and the Uchiha clan started to plot a coup d'etat to take over the village. The higher-ups in the Hidden Leaf though planted a spy amongst them, that spy was Itachi.