The Islamic world erupted into civil war after Uthman's death, as the caliphate was contested and anarchy reigned. For the first time in Islam's short history, Muslims fought fellow believers. One of the main sources of unrest was the battle, which had been quietly raging since Muhammad's death, between Ali's supporters, the Shi'ites, and those who refused to recognise Ali's right to the caliphate. Since Uthman's death the main representative of the latter group, which included the majority of all Muslims, was Mu'awiya, Uthman's Umayyad cousin and governor of Syria. After Uthman's death, Ali declared himself the new caliph. Mu'awiya immediately challenged Ali's leadership and sought to keep Uthman's murder in public memory. Ali made no attempt to punish Uthman's killers, and he made further enemies by firing most of Uthman's administration. Besides Mu'awiya, Ali also faced challenges from Talha and Zubair, two companions of the Prophet, and one of the Prophet's widows, A'isha. The first physical fighting of the ensuing civil war occurred at the Battle of the Camel in December 656, during which the popular Talha and Zubair were killed and A'isha was taken prisoner.

Many Muslims were horrified at the carnage and insisted that the Prophet would not have sanctioned such violence over the caliphate. After further fighting, Ali and Mu'awiya agreed to have the succession decided by a Qur'anic tribunal, which would use the Qur'an as a reference point in deciding which man had the stronger claim to the caliphate. Both Ali and Mu'awiya agreed to abide by the tribunal's decision. When, after several months, the tribunal ruled that both men should abandon their claims to the caliphate, Ali reneged on his promise to obey the tribunal's decision and refused to step down. The civil war thus continued, while an important development occurred within the Shi'ite movement. One group of Ali's supporters was alienated by his agreement to put his fate in the hands of a human tribunal in the first place, believing that God was the only one who could decide such a matter as the succession. This group, known as the Kharijites, was the first to formally secede from orthodox Islam. They appointed one of their own members to a separate caliphate, and refused to recognise the authority of either Ali or Mu'awiya. The Shi'ites and the Kharijites fought a major battle in 658 at Nahrawan that severely decimated the Kharijite forces, but not their spirit. Three years later they would take their final revenge on Ali's supporters.

Meanwhile, in July 660, Mu'awiya took steps to push Ali from the leadership by proclaiming himself caliph in Jerusalem, one of Islam's holy cities. He had gained the support of the governor of Egypt, as well as the Syrian forces, who raided Ali's base in Iraq in Mu'awiya's name. In early 661, Mu'awiya received some unexpected assistance in his quest for power from the Kharijites, who had turned to violence in the wake of their defeat at Nahrawan three years earlier. The Kharijites had actually intended to kill both Ali and Mu'awiya, in order to establish the supremacy of their own candidate for the caliphate. They were only successful, however, in killing Ali. With Ali's claim to the caliphate permanently erased, Mu'awiya was able to consolidate his power over the Islamic empire. The civil war ended, and within a few months Mu'awiya established the first Islamic dynasty in the name of his family, the Umayyads.

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