Legend Fades to Myth

"And some things that should not have been forgotten were lost. History became legend. Legend became myth. And for two and a half thousand years, the Ring passed out of all knowledge."

- Lady Galadriel, Lord of the Rings: The Fellowship of the Ring

A thousand years ago, the Glorious Hero led a rebellion against the oppression of the Evil Emperor McDoom, rallying an army of downtrodden peasants, Storming the Castle of the dark empire, and defeating the emperor in hand-to-hand combat. His wise leadership ushered in a Golden Age of peace and prosperity that lasted for four generations, and he is remembered fondly to this day as the great founder and establisher of freedom in the land.

...huh? Wait a second, that's not right at all! See, this isn't just a backstory; his story was actually told in the previous series. He didn't raise the rebellion; he just got caught up in it, and the attack on the castle was just a diversion so he could catch the emperor alone and assassinate him with a dagger in the back. (It was the most expedient way to get rid of the guy.) And no one called him "glorious hero" until many years later, when he had dedicated most of the rest of his life to cleaning up the mess left behind by the power vacuum he helped create.

You know this as the reader, but the characters 1000 years later don't. No one from back then is still around today. The language has changed, and ancient records have never been all that good at remaining intact, so certain facts tend to get distorted over time.

The Trope Namer is the introductory passage at the beginning of each Wheel of Time book: ''The Wheel of Time turns, and Ages come and pass, leaving memories that become legend. Legend fades to myth, and even myth is long forgotten when the Age that gave it birth comes again.''

This trope only covers instances where the audience is already familiar with the original picture, and then can see the mythology it gets turned into by later generations.

See And Man Grew Proud for when the legend of sorts was a catastrophe instead. Not to be confused with Shrouded in Myth, which is when the mythologizing process happens while the subject of the myth is still alive.

Comic Books

 * After DC Comics' Crisis On Infinite Earths reboot, due to the fact that so much of the old "Earth-1" continuity was pivotal to the Legion of Super-Heroes canon, the pre-Crisis version of history was presented as the 30th century's distorted legends of the "actual" (post-Crisis) continuity. (For a while, at least. But then some RetCons were made, and a Continuity Snarl set in, so who knows is this is still the case in the current version of the Legion.)
 * In one Fantastic Four arc they come across a town suffering from Decade Inside Second Outside; inside the town the FF are considered legendary heroes (even more so than in Earth-616 Real Life) and are quite upset when they find out about how the FF are really.

Film

 * The religious myth held by the apes in the first Planet of the Apes movie turns out to be a distorted version of Caesar's rebellion and the human war that allowed apes to come to power as depicted in the sequels.
 * The prologue to the Lord of the Rings movies says this is why things came to be as they were at the end of the Third Age: people forgot about past threats, and grew complacent. Sauron exploited that.
 * It's also an explanation of why these crucial events in the history of "Middle Earth" are absent from any standard historical chronicle today. The history became legend, the legend became myth, and in time, even the myth was forgotten, save for a couple of odd volumes ...

Literature

 * As noted above, The Wheel of Time. The series describes history as a circular repetition of seven Ages, and the story is set in the Third Age, which is both after and before our own time. One minstrel in the first book claims to tell tales of an ancient Age which are recognizable as distorted memories of the 20th century, and many of the events of the series bear a distinct resemblance to any number of what we know as ancient mythologies.
 * Also happens in-universe every now and then, particularly with Birgitte, who's met half the heroes of the legends in person and probably been the other half.
 * The Trope Namer comes from a line at the beginning of every book, but there's a short-term example of it at the end of most books too. Most of the novels end with a line about how rumors and legends spread about the important event at the climax of the book, and how they would be wrong and/or contradict each other about most details, but would usually get the most important detail right. Legend fading to myth within a year or so, in-universe.
 * The Alloy of Law, by Brandon Sanderson, is set 300-odd years after the Mistborn trilogy. The events of the trilogy have taken on mythological and religious significance to the later generations. The most humorous of these changes is the ancient High Speech; when an example of it is given, it's quickly recognizable to readers as the silly-sounding thieves' cant used by a few characters in the original trilogy!
 * In Dragonsinger from the Dragonriders of Pern series, we are introduced to the legend of Moreta, the Dragonlady who saved Pern from a deadly epidemic at the cost of her own life. Moreta: Dragonlady of Pern (published at a later date) recounts the actual events that gave rise to the legend.
 * Another backwards-example from Elizabeth Moon: Gird is considered to be either a saint or a god in The Deed of Paksenarrion, then the author went back and wrote the Legacy of Gird books to show what really happened.
 * In Till We Have Faces Orual lives long enough to see her sister's life become the Eros And Psyche myth.
 * In "The Sorrow of Odin the Goth" by Poul Anderson, a time traveler is actually responsible for events in a Gothic tribe that will later become mythologized in the Icelandic Volsunga Saga ... events which are much more painful, human and error-filled at the time than later generations will realize.
 * Septimus Heap:
 * Five hundred years after Queen Etheldredda's death, her actual gain of immortality and trapping in the Palace attic have become a myth that is recounted in The Magykal Papers.
 * The myth of the Black Fiend that lives in the Summerhouse of the Palace seems like a follow-up of Ullr's exploits 500 years earlier.

Tabletop Games

 * Warhammer 40 K is full of this.
 * The Emperor was not a god, half his campaigning was in order to eliminate the concept of religion (and one of his children turned against him because he ordered him to stop worshipping him). These days, he's the central figure of humanity's state religion.
 * Many of the more primitive worlds ascribe Space Marine landings as the God-Emperor sending his Angels of Death, sometimes the Marines looking for initiates are remembered as selecting the worthiest to live with them in paradise.
 * Forgotten Realms has several, including the incident where elves imprisoned three fiends, but the warning became a legend, then a fairy tale, then Curse Escape Clause was fulfilled and three very pissed off nycaloths were released, so they assembled The Army of Darkness which eventually crushed Myth Drannor. For that matter, City of Song itself, despite being relatively recent, became semi-mythological, or at least unpleasant details tend to be left out -- that keying selective spells to attack "allied" races being outlawed after some precedents, or that Cormanthyr ended up ruled by a council because Srinshee was exasperated enough to claim its throne by blade-rite only to give a public speech outlining her disgust over their behaviour and teleport away.

Video Games

 * Lampshaded in The Legend of Zelda Skyward Sword. Gaepora is giving exposition via the legend that has been handed down through the ages in Skyloft, as instructions on what Link is supposed to do. Then Fi, who was actually around when the legend was written, comments that oral tradition is not a very efficient method of data preservation, and proceeds to recite the same legend, but far more detailed.
 * This trope is also used to explain the apparent plot holes in the various games' backstories: most of the games take place hundreds or even thousands of years apart, and history has been muddled a bit since the actual events occured.

Western Animation

 * An episode of G.I. Joe had the Joes ending up in ancient Greece, and their actions end up contributing to various Greek legends (such as Sgt. Slaughter performing one of Hercules' labors).