While in self-imposed exile in Britain and Dubai, she was convicted in 1999 of corruption and sentenced to three years in prison. She continued to direct her party from abroad, being re-affirmed as PPP leader in 2002.

Bhutto returned to Pakistan on October 18, 2007, after President Musharraf granted her amnesty on all corruption charges, opening the way for her return as well as a possible power-sharing agreement.

Tragically, Bhutto's homecoming rally after eight years in exile was hit by a suicide attack, which killed 136 people. She only survived after ducking down at the moment of impact behind her armored vehicle. Bhutto said it was Pakistan's "blackest day" when Musharraf imposed a state of emergency on November 3, 2007, and threatened to bring her supporters on to the streets in mass demonstrations. Bhutto was placed under house arrest soon after, on November 9,and she called for Musharraf's resignation four days later. The state of emergency was lifted in December 2007.

Bhutto was killed when an assassin fired shots and then blew himself up after an election campaign rally in Rawalpindi on December 27, 2007. The attack also killed 28 others and wounded at least another 100. The attacker struck just minutes after Bhutto addressed a rally of thousands of supporters in the garrison city of Rawalpindi, eight miles south of Islamabad. She died after hitting her head on part of her vehicle's sunroof—not as a result of bullets or shrapnel, a spokesman for Pakistan's Interior Ministry said. President Musharraf said that he had asked a team of investigators from Britain's Scotland Yard to assist in the investigation into Bhutto's killing.

Hundreds of thousands of mourners paid last respects to former Pakistani Prime Minister Benazir Bhutto on December 28, 2007, as she was buried at her family's mausoleum in Garhi Khuda Bakhsh, the southern province of Sindh. She was buried alongside her father Zulfikar Ali Bhutto, Pakistan's first popularly elected prime minister who was executed by hanging. Bhutto's husband, Asif Ali Zardari, her three children and her sister, Sanam, attended the burial. Following Bhutto's death, Pakistani President Pervez Musharraf announced three days of mourning.

The shooting and bombing attack on the charismatic former prime minister plunged Pakistan into turmoil. Pakistan is armed with nuclear weapons and is a key U.S. ally in the war on terrorism. Furious supporters rampaged through several cities, torching cars, trains and stores in violence that left at least 23 dead. On January 2, 2008, Pakistan's election commission announced that parliamentary elections would be postponed until February 18—a delay of six weeks. Bhutto reportedly had been planning to give two visiting American lawmakers a 160-page report accusing the Musharraf government of taking steps to rig the January 8 vote.