Take the following steps in this guide to unlock each of the 18 secret characters in Ultimate Ninja 4: Naruto Shippuden.
1. Chiyo: Beat Master (Story) Mode.
2. Deidara: Beat him in Master (Story) Mode.
3. Gaara (old version): On “Hero Mode”, defeat his nearly full Shukaku version using Naruto.
4. Haku: Defeat him in “Hero Mode”.
5. Hiruzen Sarutobi (Third/Sandaime Hokage): On “Hero Mode”, defeat Orochimaru using him during Konoha’s Invasion.
6. Itachi: Beat Master (Story) Mode.
7. Jiraiya: On “Hero Mode”, unlock the scene where Naruto protects Tsunade from Kabuto.
8. Kabuto: On “Hero Mode”, defeat him using Naruto.
9. Kankurou (old version): On “Hero Mode”, unlock the scene of his fight against Shino during Konoha’s Invasion.
10. Kisame: Beat him in Master (Story) Mode.
11. Minato Namikaze (Fourth/Yondaime Hokage): Complete Hero Mode.
12. Orochimaru: Playing “Hero Mode”, you get him in the level after Naruto fights him.
13. Sasori: Beat him in Master (Story) Mode.
14. Shizune: On “Hero Mode”, unlock the scene where Tsunade attacks Orochimaru.
15. Temari (old version): On “Hero Mode”, unlock the scene of her fight against Shikamaru during the Chuunin Exams.
16. Tobirama Senju (Second/Nidaime Hokage): On “Hero Mode”, unlock the scene of Sandaime’s funeral.
17. Tsunade (Fifth/Godaime Hokage): On “Hero Mode”, unlock the scene where she attacks Orochimaru.
18. Zabuza: Defeat him in “Hero Mode”.
Note: If you still have an Naruto: Ultimate Ninja 3 save file on your memory card, you can right away unlock all the characters except for Chiyo, Deidara, Itachi, Kisame, the Fourth Hokage Minato Namikaze, and Sasori. You’ll also start the game with 100,000 Yen.
How to play as Kyubi or Demon forms of some characters:
First unlock all the characters in the game (inluding the fourth Hokage). Then when you’re in the character select screen hovering over certain character, hold R1 then press O on your PS2 controller to choose the character you want to play as, but in a stronger shape.
This is what the fully unlocked character and stage select screens look like:
Thanks again to Narutovshaku for sending in the list!