When Etienne (given by some sources as Jacques) and Joseph Montgolfier were small children, living in France, they had a passion. Flying kites, specifically kites made of paper. Due to the construction of the kites, they had to be quite skillful to ensure that when the wind died, that their kites would not fall onto trees on in the water, or anywhere else that might otherwise harm the fragile flyers. Legend has it that one day, the two brothers were flying their kites when the wind died suddenly, causing the toys to plummet downwards, directly towards (to their horror) a large bonfire built by a farmer who was clearing wood. However, when the kites were still some distance above the conflagration, they slowed, righted themselves, and slowly began to float back upwards, borne by the rising hot air from the fire.
This event was supposedly the instigation of their later attempts to use the nature of rising heat to create a flying machine that would support people.
The first prototype hot air balloon, the "Aerostat Reveillon" is sometimes credited to them, and sometimes credited to other inventors, like Pilatre De Rozier. What is known is that the flight took place on September 19th, 1783, and that the passengers were a rooster, a sheep, and a duck.
The Montgolfier brothers developed the next prototype, which was launched on November 21st, 1783, from Paris. The launch of this design was the first manned balloon flight, and carried two french noblemen. The balloon was constructed from lightweight paper and silk. The flight lasted for about 20 minutes before the ballon landed in some vineyards, where the noblement placated the frightened farmers by giving them champagne (still apparently a ballooning tradition). The hot air balloon was born.
In the 1960s, two major changes in the technology and materials used in hot air ballooning left us with the modern concept of the sport; comparatively little advancement had been made from the 1700s up until this point, except for advances in materials, which were generally developed by other industries. The first is using Ripstop nylon as material for the balloon, and the second is heating the balloon's air with an LPG gas burner. These two innovations have greatly increased the safety of the activity.
The continuous petroleum gas burner for ballooning was developed in October of 1960 by Raven Industries of South Dakota, who initially supplied balloons for research purposes to the US Navy.
The current world record holder for fastest circumnavigation of the globe with a hot air balloon is held by Steve Fossett, of the USA, in his balloon, The Spirit of Freedom. Steve has the added distinction of having performed this feat while flying solo. The trip took 13 days, 8 hours, and 33 minutes.