The Master Ring forged secretly by the Dark Lord, Sauron in the fires of Mount Doom and designed to control the use of the nineteen Great Rings, forged under his tutelage by the elves of Eregion in the middle of the Second Age.

Sauron gifted these nineteen rings to Elves, Dwarves and Men, that through them, by the power of the One, he might crush all resistance to his domination of Arda.

"One Ring to rule them all, One Ring to find them,
One Ring to bring them all and in the darkness bind them"

The One Ring first appeared in The Hobbit when Bilbo Baggins on the Quest of Erebor, found it in the tunnels of the Misty Mountains. It had been in the possession of Gollum for 500 years, extending but weakening his life, but he had lost it. Through Gollum’s habit of talking to himself Bilbo heard that the ring granted invisibility. He kept it and used it several times during his adventures, keeping it when he returned to the Shire in 2942.

In TA 3001, the One Ring became central to Tolkien’s sequel The Lord of the Rings. Unaware of its perilous potential, Bilbo bequeathed the ring to his heir, Frodo Baggins and left the Shire. It was not until TA 3018 that Gandalf confirmed that it was the One Ring, and that Sauron had information as to where it might be.

"The chief power (of all the rings alike) was the prevention or slowing of decay (i.e. change viewed as a regrettable thing) the preservation of what is desired or loved, or its semblance ... But also they enhanced the natural powers of a possessor." (Letters #131)

See the article Sauron and the One Ring in the Middle Earth section of Elrond's Library for more information.

Note: Additional information from Cirdaneth.