Hydra (sometimes called Pluto III) is one of three known moons of Pluto, and was discovered in June 2005 by the Hubble Space Telescope along with its fellow moon Nix. It is named for the nine-headed serpent charged with guarding a watery entrance to the Underworld in Greek and Roman mythology. Before a name was decided on, Hydra was provisionally dubbed S/2005 P 1. It is the outermost of Pluto's three moons, and an animation of its place in relation to the other satellites of Pluto can be found here. A glamour shot of the whole family can be viewed here.
Hydra was probably formed as a result of the same large impact astronomers speculate resulted in Charon.
References
http://www.space.com/scienceastronomy/051031_pluto_moons.html
http://www.space.com/scienceastronomy/060621_nix_hydra.html
http://www.boulder.swri.edu/plutonews/
http://en.wikipedia.org/wiki/Pluto_III
http://www.jhuapl.edu/newscenter/pressreleases/2006/060622.asp