In the mid-1980s, Kent Beck and Ward Cunningham worked together in a research group at Tektronix. They founded the idea of CRC cards and (the seminal contribution of) design patterns, while building many Smalltalk systems. The roots of XP come from this collaboration. Eventually, Beck branched into private consulting, slowly (re-)discovering the various XP practices, such as the value of working in a common room. Cunningham went on to create the popular and unique Web concept of Wiki Webs.
In the mid-1990s, Beck was retained by Chrysler to help with a new Smalltalk-based payroll system, the C3 project. One aim of the project was the education of the staff in object-technology skills; a successful payroll system was desirable, but not the only goal. Beck introduced the majority of practices that became XP, and brought in Ron Jeffries to daily lead and coach the team. Martin Fowler was also invited for some consulting. Primarily led by the vision of Beck, the XP practices coalesced on this project.
Beck says that at its heart, XP is expressing what he learned with and from Cunningham.
There has been some mis-information that the C3 project "failed." In fact, management felt that the team received good object-technology education, and the C3 payroll system did successfully go into production for several thousand employees, but was eventually phased out and the team reassigned, as management with direction from the new Daimler owners developed different ideas for handling payroll at the new-found DaimlerChrysler company.