In 1941, "Forrest Mars Sr.," of the "Mars" candy company, made a deal with "Bruce Murrie," the son of the "Hershey" candy company's president William Murrie.  The would create a hard shelled candy with chocolate at the center. 

Mars needed Hershey’s chocolate because he believed there would be a chocolate shortage during World War II, which turned out to be correct.

The deal gave William Murrie a 20% ownership in the new candy, they called M&M.  This 20% interest was later bought out by Mars after the war, in 1948.

The name M&M therefore stands for “Mars & Murrie” the co-creators of the candy.

Interesting facts:

The “M&M” was modeled after a candy Forrest Mars, Sr. discovered while in Spain during the 1930s.  During the Spanish civil war there, he observed soldiers eating chocolate pellets with a hard shell of tempered chocolate.   This prevented the candies from melting, which was necessary when included in soldiers supplies.

During WWII, production of M&Ms skyrocketed due to the fact that they were sold to the military and included as part of United States’ soldiers rations.

The original M&M colors were: red, yellow, brown, green, and violet.

M&Ms were served in cardboard tubes when they were first introduced.

The “M” printed on the M&Ms was originally printed black.  This was changed to white in 1954.

Forrest Mars Sr. not only helped invent the M&M, but also famously invented the Mars bar, which was a “malted milkshake in a candy bar."

At the time of his death at age 95 in 1999, Forrest Mars, Sr. had grown his father’s company to the point where he now had amassed a fortune for himself of over 4 billion dollars.  At that time, he ranked 30th on the list of richest Americans, with his sons Forrest Jr and John ranking 29th and 31st.  He left the company to his children who still own it today.