In 1969, UC Berkeley electrical engineering graduate Kenneth Thompson and his Bell Laboratories colleague Dennis Ritchie wanted to play a computer game called "Space Travel" on a dusty old mainframe computer. To do it, the two were forced to write a new operating system for the machines. The end result was UNIX, still the industry standard operating system, in various flavors, for workstation and networked computing and a key component in the Internet's infrastructure. Well, according to what I was able to find online, it went like this:
In 1957, Bell labs needed an OS to run on they computer center. Their center was running various batch jobs. To fullfil those needs, the BESYS operating system was created.
Later on, in 1965, when Bell labs were adopting new computer equipment, they decided to join with forces of General Electric and MIT and create Multics (Multiplexed Information and Computing Service). Prof. Fernando J. Corbató of MIT led the project. If you wanna read more about this system, I recommend going http://www.multicians.org.
Bell Labs withdrew from the development effort in march 1969 and in 1970 GE sold its computer business to Honeywell, which offered Multics as a commercial product and sold a few dozen systems.
When Multics was withdrawn Ken Thompson and Dennis Ritchie needed to rewrite an operating system in order to play space travel on another smaller machine (a DEC PDP-7 [Programmed Data Processor 4K memory for user programs). The result was a system that a punning colleague called UNICS (UNiplexed Information and Computing Service)--an 'emasculated Multics'.
In November 1971, the first release of Unix was releases. These 2 guys also released book Unix PROGRAMMER'S MANUAL. System had over 60 commands like b (compile B program); boot (reboot system); cat (concatenate files); chdir (change working directory); chmod (change access mode); chown (change owner); cp (copy file); ls (list directory contents); mv (move or rename file); roff (run off text); wc (get word count); who (who is one the system). 
Next year, 1972, we have new Unix release, and also B language rewrite is named as C (by Ritchie).
Thompson and Dennis Ritchie presented the first Unix paper at the Symposium on Operating Systems Principles at Purdue University in November 1973. At the conference, there was also Professor Bob Fabry, of the University of California at Berkeley. And he is responsible for bringing UNIX to Berkeley. 
Bob Fabry obtained a copy of the $99 operating system to cut costs in setting up the campus' computing resources and, of course, for his students' experimentation. The thing was, that with UNIX licence, you also got source code, so researchers can modify or extend it. Graduate student Bill Joy, other students and hackers at Berkeley were working on changes to original UNIX. (Coincidentally, Thompson returned to Berkeley that same year, 1974, as a visiting professor on sabbatical from Bell Labs.)
(Sixth edition of UNIX released May 1975).
The word had spread, and in 1977 more and more people were asking for their (Berkeley) modified UNIX version. Those were mostly other Universities. Joy released Berkeley UNIX under the name BSD (Berkeley Software Distribution).
As reminder, it didn't provide a kernel nor operating system. It provided a variety of useful programs and utilities for UNIX. In addition to Thompson's Pascal, ashell, various games, and over 50 useful tools, the first BSD also provided many enhanced programs derived from original Sixth Edition Unix and older source, including file, login, ls, nm, sh, size, su, and wc. Some other technologies also shipped in the first BSD include: htmp (home directory and teletype data base used by custom login and su), ttycap (terminal capability database), and ttytype (database for mapping teletypes to their types). 
This release is referred as 1BSD.
What was next? We shall read in next post of BSD history!
If you can find any mistake, or have anything else to say, please let me know in comments!