Origins of Frame Story

Some of the earliest known frame stories

are those from ancient Egypt, including
one found in the Papyrus Westcar, the Tale of the Shipwrecked Sailor, and The Eloquent
Peasant.
Other early examples are
from Indian literature, including the
Sanskrit epics Mahabharata, Ramayana,
Panchatantra, Syntipas's The Seven Wise
Masters, and the fable collections
Hitopadesha and Vikram and The
Vampire.
This form gradually spread
west through the centuries and became
popular, giving rise to such classic frame
tale collections as the One Thousand and
One Nights (Arabian Nights), The
Decameron, and Canterbury Tales. This
format had flexibility in that various
narrators could retain the stories they liked
or understood, while dropping ones they didn't and adding new ones they heard
from other places. This occurred
particularly with One Thousand and One
Nights, where different versions over the
centuries have included different stories.
The use of a frame story in which a single
narrative is set in the context of the telling
of a story is also a technique with a long
history, dating back at least to the
beginning section of the Odyssey, in which
the narrator Odysseus tells of his
wandering in the court of King Alcinous.

References
Witzel, Michael E. J. (1987). "On the
origin of the literary device of the
'Frame Story' in Old Indian literature".
In Falk, H. (ed.). Hinduismus und
Buddhismus, Festschrift für U.
Schneider. Freiburg. pp. 380–414.
ISBN 3-925270-01-9.