While the film was marketed as being based on real events, and the actors' performances helped to contribute to the illusion, it was all staged. The "found footage" was actually filmed by the directors, and the story was a work of fiction.
However, the film's success and the way it blurred the lines between reality and fiction led to many people believing it to be true. It's a testament to the power of storytelling and the ability of film to create a sense of immersion and reality.