Room 40, also known as 40 O.B. (old building; officially part of NID25), was the cryptanalysis section of the British Admiralty during the First World War.

The group, which was formed in October 1914, began when Rear-Admiral Henry Oliver, the Director of Naval Intelligence, gave intercepts from the German radio station at Nauen, near Berlin, to Director of Naval Education Alfred Ewing, who constructed ciphers as a hobby. Ewing recruited civilians such as William Montgomery, a translator of theological works from German, and Nigel de Grey, a publisher. It was estimated that during the war Room 40 decrypted around 15,000 intercepted German communications from wireless and telegraph traffic. Most notably the section intercepted and decoded the Zimmermann Telegram, a secret diplomatic communication issued from the German Foreign Office in January 1917 that proposed a military alliance between Germany and Mexico. Its decoding has been described as the most significant intelligence triumph for Britain during World War I because it played a significant role in drawing the then-neutral United States into the conflict.

Room 40 operations evolved from a captured German naval codebook, the Signalbuch der Kaiserlichen Marine (SKM), and maps (containing coded squares) that Britain's Russian allies had passed on to the Admiralty. The Russians had seized this material from the German cruiser SMS Magdeburg after it ran aground off the Estonian coast on 26 August 1914. The Russians recovered three of the four copies that the warship had carried; they retained two and passed the other to the British. In October 1914 the British also obtained the Imperial German Navy's Handelsschiffsverkehrsbuch (HVB), a codebook used by German naval warships, merchantmen, naval zeppelins and U-boats: the Royal Australian Navy seized a copy from the Australian-German steamer Hobart on 11 October. On 30 November a British trawler recovered a safe from the sunken German destroyer S-119, in which was found the Verkehrsbuch (VB), the code used by the Germans to communicate with naval attachés, embassies and warships overseas. Several sources have claimed that in March 1915 a British detachment impounded the luggage of Wilhelm Wassmuss, a German agent in Persia and shipped it, unopened, to London, where the Director of Naval Intelligence, Admiral Sir William Reginald (Blinker) Hall discovered that it contained the German Diplomatic Code Book, Code No. 13040. However, this story has since been debunked.

The section retained "Room 40" as its informal name even though it expanded during the war and moved into other offices. Alfred Ewing directed Room 40 until May 1917, when direct control passed to Hall, assisted by William Milbourne James. Although Room 40 decrypted Imperial German communications throughout the First World War, its function was compromised by the Admiralty's insistence that all decoded information would only be analysed by Naval specialists. This meant while Room 40 operators could decrypt the encoded messages they were not permitted to understand or interpret the information themselves.

In 1911, a sub-committee of the Committee of Imperial Defence on cable communications concluded that in the event of war with Germany, German-owned undersea cables should be destroyed. In the early hours of 5 August 1914, the cable ship Alert located and cut Germany's five trans-Atlantic cables, which ran down the English Channel. Soon after, the six cables running between Britain and Germany were cut. As an immediate consequence, there was a significant increase in cable messages sent via cables belonging to other countries, and messages sent by wireless. These could now be intercepted, but codes and ciphers were naturally used to hide the meaning of the messages, and neither Britain nor Germany had any established organisations to decode and interpret the messages. At the start of the war, the navy had only one wireless station for intercepting messages, at Stockton-on-Tees. However, installations belonging to the Post Office and the Marconi Company, as well as private individuals who had access to radio equipment, began recording messages from Germany.

Intercepted messages began to arrive at the Admiralty intelligence division, but no one knew what to do with them. Rear-Admiral Henry Oliver had been appointed Director of the Intelligence division in 1913. In August, 1914, his department was fully occupied with the war and no-one had experience of code breaking. Instead he turned to a friend, Sir Alfred Ewing, the Director of Naval Education (DNE), who previously had been a professor of engineering with a knowledge of radio communications and who he knew had an interest in ciphers. It was not felt that education would be a priority during the expected few months' duration of the war, so Ewing was asked to set up a group for decoding messages. He initially turned to staff of the naval colleges Osborne and Dartmouth, who were currently available, due both to the school holidays and to naval students having been sent on active duty. Alastair Denniston had been teaching German but later became second in charge of Room 40, then becoming chief of its successor after the First World War, the Government Code and Cypher School (located at Bletchley Park during the Second World War).

Others from the schools worked temporarily for Room 40 until the start of the new term at the end of September. These included Charles Godfrey, the headmaster of Osborne (whose brother became head of naval Intelligence during the Second World War), two naval instructors, Parish and Curtiss, and the scientist and mathematician Professor Henderson from Greenwich Naval College. Volunteers had to work at codebreaking alongside their normal duties, the whole organisation operating from Ewing's ordinary office where code breakers had to hide in his secretary's room whenever there were visitors concerning the ordinary duties of the DNE. Two other early recruits were R. D. Norton, who had worked for the Foreign Office, and Richard Herschell, who was a linguist, an expert on Persia and an Oxford graduate. None of the recruits knew anything about codebreaking but were chosen for knowledge of German and certainty they could keep the matter secret.

A similar organisation had begun in the Military Intelligence department of the War Office, which became known as MI1b, and Colonel Macdonagh proposed that the two organisations should work together. Little success was achieved, except to organise a system for collecting and filing messages, until the French obtained copies of German military ciphers. The two organisations operated in parallel, decoding messages concerning the Western Front. A friend of Ewing's, a barrister by the name of Russell Clarke, together with a friend of his, Colonel Hippisley, approached Ewing to explain that they had been intercepting German messages. Ewing arranged for them to operate from the coastguard station at Hunstanton in Norfolk, where they were joined by another volunteer, Leslie Lambert (later becoming known as a BBC broadcaster under the name A. J. Alan). Hunstanton and Stockton formed the core of the interception service (known as 'Y' service), together with the Post Office and Marconi stations, which grew rapidly to the point it could intercept almost all official German messages. At the end of September, the volunteer schoolmasters returned to other duties, except for Denniston; but without a means to decode German naval messages there was little specifically naval work to do.