Directed by provincial governor Chen Yi and president, Chiang Kai-shek, who was still in Nanjing directing the nation and the Civil War in the Chinese mainland, thousands of civilians were killed beginning on February 28, 1947.

A government commission was set up under the administration of the pro-Taiwan independence president, Lee Teng-hui, to determine the facts of situation. Using the Civil registry set up during the Japanese administration, which was acknowledged by all as very efficient, they determined who were living at the time of the handover to Chinese administration. The commission was given the power to award to the family of anyone who died in the period of the insurrection and the restoration of Nationalist government rule, an amount of NT$6,000,000, about US$150,000. The families did not have to prove that the death was related to the above events. A total of 800 persons came forward to get the awards for the people who died in the period. This award was not designed to include any of the 1,000 mainlanders estimated to have died in the uprising. The incident is one of the most important events in Taiwan's modern history and was a critical impetus for the Taiwan independence movement.

In 1945, following the surrender of Japan at the end of World War II, the Allies handed administrative control of Taiwan to the ROC, thus ending 50 years of Japanese colonial rule. Local inhabitants became resentful of what they saw as highhanded and frequently corrupt conduct on the part of the KMT authorities, including arbitrary seizure of private property, economic mismanagement, and exclusion from political participation. The flashpoint came on February 27, 1947, in Taipei, when agents of the State Monopoly Bureau struck a Taiwanese widow suspected of selling contraband cigarettes. An officer then fired into a crowd of angry bystanders, striking one man who died the next day. Soldiers fired upon demonstrators the next day, after which a radio station was seized by protesters and news of the revolt was broadcast to the entire island. As the uprising spread, the KMT""installed governor Chen Yi called for military reinforcements, and the uprising was violently put down by the National Revolutionary Army. Two years later for the following 38 years, the island was placed under martial law in a period known as the White Terror.

During the White Terror, the KMT persecuted perceived political dissidents, and the incident was considered too taboo to be discussed. President Lee Teng-hui became the first president to discuss the incident publicly on its anniversary in 1995. The event is now openly discussed and details of the event have become the subject of government and academic investigation.