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MPEG-1 Audio Layer 3, more commonly referred to as MP3, is a digital audio encoding format using a form of lossy data compression.

It is a common audio format for consumer audio storage, as well as a de facto standard encoding for the transfer and playback of music on digital audio players.

MP3 is an audio-specific format that was designed by the Motion Pictures Expert Group. A group formed by several teams of engineers at Fraunhofer IIS in Erlangen, Germany, AT&T-Bell Labs in Murray Hill, NJ, USA, Thomson-Brandt, and CCETT as well as others. It was approved as an ISO/IEC standard in 1991.

The use in MP3 of a lossy compression algorithm is designed to greatly reduce the amount of data required to represent the audio recording and still sound like a faithful reproduction of the original uncompressed audio for most listeners, but is not considered high fidelity audio by audiophiles. An MP3 file that is created using the mid-range bit rate setting of 128 kbit/s will result in a file that is typically about 1/10th the size of the CD file created from the original audio source. An MP3 file can also be constructed at higher or lower bit rates, with higher or lower resulting quality. The compression works by reducing accuracy of certain parts of sound that are deemed beyond the auditory resolution ability of most people. This method is commonly referred to as perceptual coding.[1] It internally provides a representation of sound within a short term time/frequency analysis window, by using psychoacoustic models to discard or reduce precision of components less audible to human hearing, and recording the remaining information in an efficient manner. This is relatively similar to the principles used by JPEG, an image compression format.

A reference simulation software implementation, written in the C language and known as ISO 11172-5, was developed by the members of the ISO MPEG Audio committee in order to produce bit compliant MPEG Audio files (Layer 1, Layer 2, Layer 3). Working in non-real time on a number of operating systems, it was able to demonstrate the first real time hardware decoding (DSP based) of compressed audio. Some other real time implementation of MPEG Audio encoders were available for the purpose of digital broadcasting (radio DAB, television DVB) towards consumer receivers and set top boxes.

Later, on July 7, 1994 the Fraunhofer Society released the first software MP3 encoder called l3enc. The filename extension .mp3 was chosen by the Fraunhofer team on July 14, 1995 (previously, the files had been named .bit). With the first real-time software MP3 player Winplay3 (released September 9, 1995) many people were able to encode and play back MP3 files on their PCs. Because of the relatively small hard drives back in that time (~ 500 MB) lossy compression was essential to store non-instrument based (see tracker and MIDI) music for playback on computer.