There's several points of dissolution in Jazz as such a singular moment but easily the first and most important is the beginning of Bebop which both legitimizes Jazz musically and also defeats itself.
Bebop is incredibly important because it frees Jazz from the dancefloor and prevents Jazz from being 'dance music'. Jazz was and remained dance music even after the arrival of bebop, because obviously your Armstrongs, Calloways, Basies, etc. still remained but as a result the music that succeeded in it's wake was more redundant and straight-forward; one could argue that R&B/Rock n' Roll/whatever other titles were a 'dumbing down' but I think if anything they were done with a sense of functionality.
In another thread somebody invoked the infamous Adorno criticism of jazz and my interpretation is that he seized on it as a rejection of its obvious sense of Utility and Function. That the music was always going to be the soundtrack of dance-halls and meant to service people having a celebration, not be recognized for itself like so called Art Music was done in Europe. You could argue this role would later be played by discoteque musicians or DJs and we know that line is much more easy to blur but certainly there's a logic that this music positioned itself in a devalued state. It kind of works in opposition to the Eno/Satie theorem that music that serves an environment in functionality for a greater hosting purpose is good to become art music that's celebrated for it's development and virtuosity, but it's an inevitable aspect of such a competitive musician culture and when quality of the musicality becomes a selling point to the connoisseur.
(Luka's gonna see this and bitch about "fucking Marxism again!" but like, that's the thing, it isn't like say Gospel where it's an inner community competitive circuit, it becomes the fact that people are going to Hire The Best Musician, seek The Best Solos, the whole emergence of Down Beat critic culture, these external forces beyond just the music for it's own sake both defeat the mere functionality and also introduce their own sort of aggendaist elitism)