To disillusion is to make someone realize their belief isn't true. If your cousin believes that the Tooth Fairy will come in the night, take her tooth and sprinkle her with fairy dust. It would be too cruel to disillusion her.
When you disillusion someone, you take away a false belief, or an illusion. Your parents' divorce might disillusion your romantic ideas of marriage, and a political candidate you supported enthusiastically could disillusion if she doesn't follow through on her promises. The disappointment you feel as a result of being disillusioned is also called disillusion, like the disillusion that results when your older sister tells you the truth about the Easter Bunny.