Quote Originally Posted by Abdula
From the way this battle has gone so far it could still be genjutsu most likely they are still testing each other out. I don't know if a battle could be fought entirely using genjutsu I suppose with these two it could and that seems to be Itachi's favorite method of fighting. Them using genjutsu doesn't make the battle stupid I find it to be really impressive and I think it would be logical for Itachi to try and defeat Sasuke using genjutsu.
Of course it could. Genjutsu is "just" the focusing and manipulation of your chakra in your opponent's brain. This is why Tsukuyomi could kill. Jiraiya explained this, and how to break free, to Naruto way back (mold as much chakra in your head as you can, in a big burst).

This is also why I think the Rinnegan's secret is a genjutsu -- each of Pein's six bodies use genjutsu on the other 5, so they can all see what the others see.