Off-the-Record Messaging, commonly referred to as OTR, is a cryptographic protocol that provides strong encryption for instant messaging conversations. OTR uses a combination of the AES symmetric-key algorithm, the Diffie–Hellman key exchange, and the SHA-1 hash function. In addition to authentication and encryption, OTR provides perfect forward secrecy and malleable encryption.
The primary motivation behind the protocol was providing deniability for the conversation participants while keeping conversations confidential, like a private conversation in real life, or off the record in journalism sourcing. This is in contrast with other cryptography tools that produce output which can be later used as a verifiable record of the communication event and the identities of the participants. In most cases, people using such cryptography software are not aware of this and might be better served by OTR tools instead. The initial introductory paper was named "Off-the-Record Communication, or, Why Not To Use PGP".
The OTR protocol was designed by cryptographers Ian Goldberg and Nikita Borisov. They provide a client library to facilitate support for instant messaging client developers who want to implement the protocol and a special OTR-proxy for AIM, ICQ, and .Mac clients which support proxies. A Pidgin and Kopete plugin exists that allows OTR to be used over any IM protocol supported by Pidgin or Kopete, offering an auto-detection feature that starts the OTR session with the buddies that have it enabled, without interfering with regular, unencrypted conversations.
Read more about Off-the-Record Messaging: Implementation, Authentication, Limitations