From early in his reign, the Fatimid Caliph-Imam Al-Mustansir Billah had publicly named his elder son Nizar as his heir to be the next Fatimid Caliph-Imam. After Al-Mustansir died in 1094, Al-Afdal Shahanshah, the all-powerful Armenian Vizier and Commander of the Armies, wanted to assert, like his father before him, dictatorial rule over the Fatimid State. Al-Afdal engineered a palace coup, placing his brother-in-law, the much younger and dependent Al-Musta'li, on the Fatimid throne.

In early 1095, Nizar fled to Alexandria, where he received the people's support and where he was accepted as the next Fatimid Caliph-Imam after Al-Mustansir. In late 1095, Al-Afdal defeated Nizar's Alexandrian army and took Nizar prisoner to Cairo where he had Nizar executed. After Nizar's execution, the Nizari Ismailis and the Musta'li Ismailis parted ways in a bitterly irreconcilable manner. The schism finally broke the remnants of the Fatimid Empire, and the now-divided Ismailis separated into the Musta'li following (inhabiting regions of Egypt, Yemen, and western India) and those pledging allegiance to Nizar's son Al-Hadi ibn Nizar (living in regions of Iran and Syria). The latter Ismaili following came to be known as Nizari Ismailism.

Imam Al-Hadi, being very young at the time, was smuggled out of Alexandria and taken to the Nizari stronghold of Alamut Castle in the Elburz Mountains of northern Iran, south of the Caspian Sea and under the regency of Dai Hasan bin Sabbah. Over the following decades, the Nizaris were among the most bitter enemies of the Musta'li rulers of Egypt. Hassan-i Sabbah founded the Order of Assassins, which was responsible for the assassination of al-Afdal in 1121, and of al-Musta'li's son and successor al-Amir (who was also al-Afdal's nephew and son-in-law) in October 1130.