A "nesting doll" that comes from Russia, first appeared in late 1800s in Sergiev Posad, near Moscow. Very popular as a souvenir. (The name probably comes from mat (compare to Latin root mater), "Mother" - and Russian names Matryona and Matryosha, both popular women's names at the time.)
The dolls are typically made of wood and are carved hollow. Each (except the innermost) doll has a seam and can be split to two, revealing another, smaller doll.
The most famous Matryoshkas that the West saw were factory-produced and typically depicted a woman, with black hair and red cheeks and scarf. Of course, this was not the only type made; Before the industrialization they were typically hand-painted and depicted wide variety of other characters - very complex form of art. Industrial production - and communist government - required simpler themes. In recent times, though, the themes have once again become very varied. There's matryoshkas for everything, even many with political themes...
While this art form was brought to the fruition by the Russians, it was invented in Japan - the "forefather" of these dolls depicted Fukuruma, and was made by a Russian monk in Honshu.
Some sources: russian-crafts.com, russian-gift.com