Spiritual Stone of Water

The Zora's Sapphire is the Spiritual Stone of Water which was passed down to Link by Princess Ruto, after he had saved her from inside of the giant fish Lord Jabu Jabu. (This was probably unintentional on the fish's part because of the current sickness he had.)

After Link had saved her, Ruto fell in love with Link and gave him this stone as a symbol of their engagement. The stone was given to Ruto by her mother who said to give it to the man she would marry, which explains such odd actions.

It is one of the three Spiritual Stones which Link needed in order to open the doors to the hidden parts of the Temple of Time, where the Master Sword rested.

Trivia

 * The Zora's Sapphire is also known as the Zora's Engagement Ring; the Zora Royal Family passes the stone onto a trusted and loyal husband or wife as sign of everlasting love. This is why Ruto gives Link the Zora's Sapphire: as an engagement ring.