What was Plato's inspiration for the Atlantis myth? Did an island actually sink in ancient Greece, due to a volcanic eruption or some other cataclysmic event perhaps? Was it completely wiped off the map by a tsunami? Did Plato base his story on fact or is it a work of fiction?

We don't know. The only sources for the story are Plato's dialogues Timaeus and Critias, for all we know the story of Atlantis is a completely fictitious product.

That said, any of the following historical catastrophes _may_ have been an inspiration for Atlantis:

* Minoan eruption

Thera (partially) sunk as a result of the eruption, which also produced a tsunami that devastated Minoan Crete and reached as far as Egypt.

* Helike

The city was completely submerged by an earthquake or its subsequent tsunami in 373 BC, about a decade before Plato wrote Timaeus and Critias.

* Pavlopetri

The city was completely submerged by an earthquake sometime around 1000 BC.