The cause of the attack was the Dwarves' desire to possess the Silmaril, set in the dwarven-made jewel, the Nauglamir, for themselves. After the two treasures were brought together, Thingol sought to take it and set about it his neck but the Dwarves withheld it from him, saying that he hadn't the right to do so as it was a dwarven heirloom taken from Nargothrond by theft. Then in a gesture of great pride, Thingol scorned the dwarves as inferiors undeserving in comparison to himself and proceeded to speak ill of them, deeming they should be gone out of his realm forever. Insulted and ever wanting the Silmaril, the Dwarves' hearts kindled to rage and they fell upon him and slew him and took the Nauglamir and the Silmaril.
The Dwarves left Menegroth, but it didn't take long for the alarm to be raised on what had been done, and soon all of Doriath was roused. With great wrath, the dwarves were pursued to the death and all but two returned home to Nogrod. When they arrived, the survivors lied about what really happened, saying that their brothers had been slain at the command of the Thingol, hoping to cheat them of their reward. The Dwarves of Nogrod then became filled will wrath and desired revenge. They tried to get the Dwarves of Belegost to help them but they refused.
Melian, full of grief and pain at the loss of her husband and seeing that that the doom she had so feared had finally come upon Doriath, withdrew her protection of the realm, and entrusted Mablung to send word to Beren at Tol Galen and gave him the Silmaril for safe-keeping. She then left Middle-earth and returned to Valinor leaving Doriath vulnerable.
The Dwarves of Nogrod assembled a great host and marched out of the Blue Mountains, crossing the river Gelion, and headed westward to Doriath. Crossing the Aros River, the Dwarves reached Doriath with no magical enchantments (i.e. the Girdle of Melian) or barriers to stop them. The Elven sentinels and their captains there were no match for them, and were quickly defeated; then with few losses the Dwarves passed over the great Bridge of Menegroth, and entered the caves thus beginning the Battle of the Thousand Caves. After fierce fighting in which many on both sides were killed, they were victorious and pillaged, plundered, and destroyed at their leisure and much was taken from the Great Hall of Thingol. Then, they came to the the treasury and slew Mablung before its doors and took the Nauglamir and the Silmaril.
The Dwarves left Doriath but didn't live to enjoy the fruits of their victory. At Sarn Athrad, they were ambushed by an army of Laiquendi led by Beren with his son Dior. The Dwarven host, heavily weighed-down with loot, were destroyed and the survivors that fled into the forest ran into the Ents and were killed. The Silmaril and Nauglamir were taken by Beren to Tol Galen. This marked the end of the first kingdom of Doriath until Dior and his wife Nimloth came to refounded it later ruling over the surviving Sindar, soon afterwards.