Ice wine (or in German, Eiswein) is a specific style of dessert wine produced from grapes that have been frozen while still hanging on the vine.
Unlike the grapes from which other dessert wines, such as Sauternes, Tokaji, or Trockenbeerenauslese, are made, ice wine grapes should not be affected by Botrytis or noble rot, at least not to any great degree. Only healthy grapes stay in good shape until the opportunity arises for an ice wine harvest.
The discovery of Ice wine was accidental. Due to a cool summer and exceptionally cold winter in 1794, wine producers in Franconia, Germany, by virtue of necessity, created Ice wine by pressing juice from frozen grapes.

 

They were amazed by the high sugar concentration in the pressed juice. It was not until the mid 1800's, however, that 'Ice Wine' was intentionally made.
Grapes are left on the vine well into the winter months. The resulting freezing and thawing of the grapes dehydrates the fruit and concentrates the sugars and acids in the grapes, thereby intensifying the flavours and adding complexity. This juice is then fermented very slowly for several months, stopping naturally. Genuine Ice wine must be naturally produced; no artificial freezing is permitted.
The Ice wine harvest, done entirely by hand, commences once the temperature drops below -10 degrees Celsius and the grapes have frozen naturally on the vines. As the frozen grapes are pressed, the natural water portion of the juice remains within the grape skins in the form of ice crystals. A tiny but precious ration of highly concentrated juice is expressed.
The juice from ice wine grapes is about one-fifth the amount you would normally get if you pressed unfrozen grapes. To put it another way, a vine will normally produce sufficient grapes to make a bottle of wine; but frozen grapes would produce only one glass of Ice wine. This explains the difference in price between the two.
Typical grapes used include: Riesling, Vidal Blanc and interestingly Cabernet Franc. A Cabernet Franc Ice-wine results in a sweet wine with a light pink colour.