For some two hundred years, the Knights Templar protected the faithful on their pilgrimages to Jerusalem, fought the Muslims, and gained wealth and power. They were respected and it was a prestigious thing to be accepted into the order. Many of the nobility joined once they had secured their estates and had an heir, leaving family and friends to focus on their souls. They flourished throughout the era of the Crusades. Then in 1307, it all fell apart.
So what happened? The fall was a combination of things, a series of poor military decisions, greed and jealousy from an outside source, and a weak Pope. The Knights suffered several major losses to the Muslims that pushed them out of Jerusalem, but they probably could have made a comeback from that. After all, fighting was what they were about for two centuries. What in my opinion brought them down was plain old garden variety greed and jealousy embodied by Philip the Fair, King of France. And he used the Church to do it.
In one source, I read that part of the problem was Philip had applied to join the order and was turned down. And it made him angry. But nearly everyone else agrees that it was Philip's greed, his lust for money that was behind it. He had already gone after the Jews and the Lombards, confiscating their wealth and land. Most likely he had planned his attack for a long time and he’d been a wee bit upset with the Church for years.
Philip, like most greedy men, spent more than he had. He was heavily in debt, so when Pope Boniface forbade the clergy to pay taxes, it made life unpleasant for Philip. His battle of wills with the Church began, and when Pope Boniface called on him for support against Aragon, Philip refused. Naturally this didn't sit well with the Pope and he retaliated, eventually offering the throne of France to the Austrian Emperor in 1302. Philip then managed to do in Pope Boniface and his successor, and by 1305, he made Bertrand de Got, his boyhood friend, into Pope Clement V. Everything was in place for his attack on the Knights Templar. And apparently they never saw it coming.
Philip IV practiced this sort of attack twice before and succeeded. Remember the Jews and Lombards? He had his own puppet Pope, and his greed knew no bounds. He made a dry run, or maybe a feint before the real attack, by attempting to unite the Templars with the Hospitallers. It didn't succeed and he put his plan into motion.
People of the day were heavily superstitious and Philip used this to his advantage. He ordered the Templars arrested on the charges of heresy--some 87 charges, including everything from denying Christ to the mode of confession they practiced and other heretical depravity. As twisted and greedy as his actions were, Philip deserves some credit for pulling off a perfectly timed arrest throughout France of the Knights Templar, in an era without our instantaneous communication. It took a month for orders to be sent out and received, and he managed to keep it secret until the time came to strike--so secret that Jacques de Molay, the Templar Grand Master, had no clue what was about to happen. He probably thought of Philip as something of a friend, since he was godfather to Philip's son, and de Molay had only the day before acted as pallbearer at the funeral of Philip's sister-in-law.
The arrests took place on October 13, 1307. It was a Friday. Was the day picked on purpose? I like to think so. In any case, the torture began immediately, and many Knights who confessed early were sent to join the Hospitallers or some other order. Unfortunately for Philip, he didn't get quite the treasure he was after. The puppet Pope showed a little initiative and transferred the lands and property of the Templars to the Hospitallers, and although they did arrest a huge number of Knights, many got away and went underground with what they could carry with them.
The Knights Templar were officially dissolved in 1312.
In the end, after suffering seven years of torture, de Molay confessed to some of the heresy charges, although never to the charge of homosexual practices. When he was taken to be burned at the stake in 1314, he recanted his confession and said the only crime he was guilty of was lying about his fellow Knights to get the torture to stop. Both Philip IV and Clement V died within one year of de Molay.
And the real mystery begins. What happened to the Templars who got away? Where did they go? Did they really form the Freemasons?
There are tons of websites covering the history of the Templars. I found these two to be the best for this post: Templar History and Alan D. Peters.