Also called 'The Necklace of the Dwarves'.

It was originally made for Finrod Felagund, by the dwarves of the Blue Mountains. It was a gold necklace, set with uncounted gems from Valinor. It had a special power so that it always sat well on whomever wore it, and it was as light as hay.

Húrin brought it out of the wreck of Nargothrond and cast it at the feet of Thingol in Doriath.

Thingol decided to have the Silmaril that was taken from the Iron Crown of Morgoth by Beren and Lúthien set in it. He asked some dwarves from Ered Lindon, who were staying in Menegroth, to undertake this task.

The dwarves slew Thingol when he claimed it back after their work was done. They tried to escape home, but were overtaken by the Elves. The Nauglamír was brought back to Melian.

Dwarves attacked Menegroth and reclaimed the Nauglamír, but they were caught again, this time by Beren. He took the necklace with the Silmaril he himself had cut out of Morgoth's crown back to Lúthien. It is said that Lúthien wearing that necklace was the fairest sight in all the world.

When Beren and Lúthien had both died, it was delivered to Thingol's heir, Dior Eluchíl. Fëanor's sons heard about the necklace with the Silmaril, and attacked, bringing about the Ruin of Doriath.

They did not find the the necklace or the Silmaril though, because a small group escaped, and among them was Elwing and she carried the jewel.

The Nauglamír, and the Silmaril in it, left Middle Earth when Elwing threw herself into the sea in 532 of the First Age.
Encyclopedia entry originally written by Hathaldir