What it the right choice?

The four valid constructions are...

1: It is used for an action we know will happen
2: It is used for an action that we know will happen
3: It is used for an action where we know it will happen
4: It is used for an action where we know that it will happen

...where #2 and #4 are effectively the same syntax as #1 and #3 respectively (they just happen to be contexts where the relativiser that is completely optional). But these are the invalid permutations...

5: It is used for an action we know it will happen - NOT VALID
6: It is used for an action that we know it will happen - NOT VALID
7: It is used for an action we know that it will happen - NOT VALID

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It may be useful to discard the "we know" element in OP's examples. Whatever "it" is, presumably it will happen, regardless of whether we know that or not...

8: It is used for an action that will happen
9: It is used for an action where it will happen

Note that these are the only syntactically valid variations without "we know". And I may be mistaken, but offhand I can't think of a valid context where the two uses of the pronoun "it" in #3, #4, #9 (the where versions) both refer to the same thing. I'm pretty sure they'd always have to be (contextually established) different things.