It was made by Fëanáro, greatest of all the elven smiths. A green gem, filled with the light of Laurelin*, and precursor to its maker's** greatest work, the Silmarils.
When first created, the gem was empty and void. A hallow, green, transparent stone, as green as the leaves of trees, but with no light to fill it. Thus, Fëanáro brought the gem to the valië Vána***, the ever young, who loved and nurtured all good growing and living things. Flowers would spring from the earth as she passed, and the birds would sing at her coming. It was she who filled it with the light of Laurelin, and because of her nurturing power, the gem ever after possessed a power of healing for its bearer. It also possessed a quality such that any who looked through it would see the withered and aged as young and whole again.****
Afterwards, Fëanáro took the jewel and wrought it into a brooch shaped like an eagle with outspread wings.***** For, though the gem itself spoke of healing, the brooch spoke of resilience and resistance against harm. It was fashioned of hard silver, and its reflection was like the cold light of the stars. The outspread wings signified protection, and the eagle fierce courage, invoking the help of Manwë. Thus it was that the Elessar, as it was called, was created by Fëanáro during the years of the trees.
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A/N:
Forgive the shortness of this chapter-the next one will be longer ;)
* The gem is described as being filled with the light of the sun, however, at the time in which Feanor likely did the greater part of his work in creating things, during the years of the trees, the sun had not yet come into existence. The sun itself, though, is the single fiery fruit of Laurelin set into a vessel and guided through the sky. It is possible that the sun's light comes from this fiery fruit, which in turn would have gotten its light from Laurelin.
**'…[Feanor] it was who…discovered how gems greater and brighter than those of the earth might be made with skill. The first gems that Feanor made were white and colorless, but being set under starlight they would blaze with blue and silver fires brighter than Helluin; and other crystals he made also, wherein things far away could be seen small but clear, as with the eyes of the eagles of Manwë.' (The Silmarillion)
***Because Vána is affiliated with living things, I have assumed that she may have been more of a nurturer, loved by birds and flowers. Yavanna, her 'sister,' appears to have had a great concern for living things, and, in my opinion, Vána was probably much the same. This makes her a natural candidate for filling the stone, which was green like 'leaves' (Unfinished Tales), with light, enabling one to see the old as young (or, in a sense, as those more full of life), just as life sprung up beneath her feet (in the case of the flowers). Another reason for my choice of her is her affiliation with the sun (the maia Arien was a maiden of Vána, and tended to the flowers in her garden before being chosen to guide the path of the sun), tying in to the gem being filled with sunlight.
****'For it is said that those who looked through this stone saw things that were withered or burned healed again or as they were in the grace of their youth, and that the hands of one who held it brought to all that they touched healing from hurt…' (Unfinished Tales)
*****'… and he set it within a great brooch of silver in the likeness of an eagle rising upon outspread wings.' (Unfinished Tales)