Zombie Liu Kang's Possession fatality, later inherited by Shang Tsung. He becomes a light, enters your body, and forces you to rip off your own head, revealing his own head under it.
This of course becomes Nightmare Retardant if he does this on any female character, especially the skimpy Mileena.
Zombie Liu Kang's appearance in general isn't a pretty sight, with the Fallen Hero having several wounds across his body and a rotting face. Not to mention that his soul is still separated from his body, which is going on a rampage and killing countless innocent lives.
Mileena manages to finally replace Kitana and nobody is the least bit suspicious, just imagine what would have happened to Edenia if that had been allowed to continue. And her veil is see-through, which means you can see her Tarkatan maw at all times! Makes you wonder how no one ever noticed that upon close inspection. Not to mention, her voice sounds like the ragged distortion of someone trying to be sensual in their behavior you'd expect of her, moaning blissfully to mock her opponents for being distracted.
Dark Raiden. The caring and compassionate thunder god of the past is gone and has been replaced by a merciless and cold-hearted jerkass who is quickly growing tired of humanity.
Havik, to some extent. Take his 'Human Pencil Sharpener' fatality. It's bad enough to have a dude with a skull face eating your arms, but then to puke up your blood afterwards is just awful! See for yourself.
His special moves are also very horrifying, as they involve him snapping parts of his body to attack.
While relatively mundane in execution, Sub-Zero's "Chest Stomp" Fatality gains a new level of horror as it's one of the only Fatalities in the whole series where the victim audibly pleads for their life. To wit, Subbie freezes, then shatters off his opponents legs, then stares menacingly down at his foe as they crawl backwards, the whole time begging him not to kill them as he ominously advances. For most characters, it's a fairly humorously hammy chain of Big No's, but Mileena sounds genuine enough to evoke images of a helpless woman cornered at the bottom of a dark alley, even though it's, well... Mileena.
Ermac's ending: As the warriors of good triumph over Onaga, Ermac's joy is suddenly halted as he begins to sense the identity of the true threat behind the oblivious villain's schemes; something far beyond them in power on the verge of being released; being the only one to realize this, he is left alone and with little time to act.
Li Mei's ending which has her turning on her allies and siding with Onaga as a result of being corrupted by nearly having her soul transferred into a dragon soldier by Shang Tsung. Fortunately, this ending isn't canon.
Goro's ending has him capturing Kitana, whom he had previously been an ally to, and brutally killing her before Shao Kahn to show his restored allegiance to the evil emperor of Outworld.
Noob Saibot's ending has him and Smoke killing Kuai Liang showing just how far both of them fallen due to their corruption.