The Register reports:
On 14 July 1995 Germany's Fraunhofer Institute chose to use the .mp3 extension for files holding audio data encoded using the MPEG standard's Audio Layer 3 specification.
The MPEG Audio Layer 3 codec was standardised in 1992.
In the last few years, .mp3 has become MP3, with few people realizing it is short for MPEG Layer 3, with MPEG an abbreviation for "motion picture experts group."
The first portable MP3 player was Diamond Multimedia's Rio PMP300, in Sept 1998