Horrific situations are found in the earliest recorded tales. Many myths and legends feature scenarios and archetypes used by later horror writers. Tales of demons and vampires in ancient Babylonian, Indian, Chinese and Japanese folklore, and tales collected by the Grimm Brothers, were often quite horrific.

Modern horror fiction found its roots in the gothic novels that exploded into popularity in the late 18th and early 19th centuries, typified by Ann Radcliffe's The Mysteries of Udolpho (1794) and Horace Walpole's The Castle of Otranto (1764). A variation on the Gothic formula that remains one of the most enduring and imitated horror works is Mary Wollstonecraft Shelley's novel Frankenstein (1818, revised version 1831). Frankenstein has also been considered science fiction, a philosophical novel or a 'novel of purpose' by some literary historians. At the same time, John William Polidori devised the kind of vampire story that has since become familiar with his novella The Vampyre. This kind of supernatural character, combining evil with sinister charm, has since been much used and elaborated by horror writers.

Later gothic horror descendants included seminal late 19th century works such as Bram Stoker's Dracula and Henry James's The Turn of the Screw. Early horror works used mood and subtlety to deliver an eerie and otherworldly flavor, but usually eschewed extensive explicit violence.

Other early exponents of the horror form number such luminaries as Edgar Allan Poe and H. P. Lovecraft who are widely considered to be masters of the art. Among the writers of classic English ghost stories, M. R. James is often cited as the finest. His stories avoid shock effects and often involve an Oxford antiquarian as their hero. Algernon Blackwood's The Willows and Oliver Onions's The Beckoning Fair One have been called the best ghost stories. Lovecraft and Sheridan le Fanu called some of their writing weird fiction or weird stories.

Horror fiction reached a wider audience in the 1920s and 1930s with the rise of the American pulp magazine. The premier horror pulp was Weird Tales, which printed many of Lovecraft's stories as well as fiction by other writers such as Clark Ashton Smith, E. Hoffmann Price, Seabury Quinn and Robert Bloch. At a lower intellectual level were the weird menace or "shudder pulps" such as Dime Mystery and Horror Stories, which offered a more visceral form of horror.

Some stories in highbrow "literary" fiction could arguably be regarded as horror narratives: examples include Franz Kafka's "The Metamorphosis" (Die Verwandlung) and "In the Penal Colony" (In der Strafkolonie) and William Faulkner's A Rose for Emily.

source: http://en.wikipedia.org/wiki/Horror_story