Legend has it that the Jewel of Fire is a star fallen from the sky, for it glows with an inner flame. The Jewel was used by Jagar Tharn to store the power of the Staff of Chaos, so that if anyone tried to recreate the staff it would be useless. The Jewel played a large role in the Imperial Simulacrum.
In 3E 389, Jagar Tharn stole the Staff of Chaos from Barenziah's court, and used it to imprison Emperor Uriel Septim VII in the realm of Oblivion, also killing his apprentice Ria Silmane so the Elder Council would not learn of his betrayal. Tharn wanted to make sure no one could release the emperor, so he attempted to destroy the staff. However, since the Staff of Chaos is indestructible, it was instead split into eight pieces, which Tharn then hid in forgotten, dangerous places throughout Tamriel. Tharn then made sure that no one could ever recreate the staff by draining its magical power into the Jewel of Fire, which he kept hidden in the Imperial Palace.
Tharn was defeated by the Eternal Champion, who infiltrated the Imperial Palace with a recreated Staff of Chaos and used it to drain the Jewel's power. Tharn, who had placed his life force in the Jewel, was destroyed, and Uriel VII was returned to Tamriel. It is unknown what became of the Jewel of Fire.