The Off-the-Record messaging protocol (OTR) was originally introduced in the 2004 paper Off-the-Record Communication, or, Why Not To Use PGP  and has since become the de facto standard for performing end-to-end encryption in XMPP. OTR provides encryption, deniable authentication, forward secrecy, and malleable encryption.
The OTR protocol itself is currently described by the document: Off-the-Record Messaging Protocol version 3  and will not be redescribed here. Instead, this document aims to describe OTR's usage and best practices within XMPP. It is not intended to be a current standard, or technical specification, as better (albeit, newer and less well tested) methods of end-to-end encryption exist for XMPP.
Though this document will not focus on the OTR protocol itself, a brief overview is warranted to better understand the protocols strengths and weaknesses.
OTR uses 128 bit AES symmetric-key encryption and the SHA-1 hash function. An OTR session can be held only between two parties, meaning that OTR is incompatible with Multi-User Chat (XEP-0045)  and Mediated Information eXchange (MIX) (XEP-0369) . It provides deniability in the form of malleable encryption (a third party may generate fake messages after the session has ended). This means that if you were not a part of the original conversation, you cannot prove, based on captured messages alone, that a message from the conversation was actually sent by a given party. Unlike PGP, OTR also provides forward secrecy; even if a session is recorded and the primary key is compromised at a later date, the OTR messages will not be able to be decrypted as each was encrypted with an ephemeral key exchanged via Diffie-Hellman key exchange with a 1536 bit modulus.
Clients that support the OTR protocol do not advertise it in any of the normal XMPP ways. Instead, OTR provides its own discovery mechanism. If a client wishes to indicate support for OTR they include a special whitespace tag in their messages. This tag can appear anywhere in the body of the message stanza, but it is most often found at the end. The OTR tag comprises the following bytes:
and is followed by one or more of the following sequences to indicate the version of OTR which the client supports:
Note that this version 1 tag must come before other version tags for compatibility; it is, however, NOT RECOMMENDED to implement version 1 of the OTR protocol.
When a client sees this special string in the body of a message stanza it may choose to start an OTR session immediately, or merely indicate support to the user and allow the user to manually start a session. This is done by sending a message stanza containing an OTR query message in the body which indicates the supported versions of OTR. In XMPP these are most commonly version 2 and version 3, which would be indicated by a message stanza which has a body that starts with the string:
Any message which begins with the afforementioned string (note that the version number[s] may be different), postfixed with a payload should be decrypted as an OTR message. The initialization message should not contain a payload, and should just be the initialization string by itself.
Some clients in the wild have been known to insert XML in the <body> node of a message. Clients that support OTR should tolerate encrypted payloads which expand to unescaped XML, and treat it as plain text.
XMPP is designed so that the client needs to know very little about where and how a message will be routed. Generally, clients are encouraged to send messages to the bare JID and allow the server to route the messages as it sees fit. However, OTR requires that messages be sent to a particular resource. Therefore clients should send OTR messages to a full JID, possibly allowing the user to determine which resource they wish to start an encrypted session with. Furthermore, if a client receives a request to start an OTR session in a carboned message (due to a server which does not support the aforementioned "private" directive, or a client which does not set it), it should be silently ignored.
Message Processing Hints (XEP-0334)  defines a set of hints for how messages should be handled by XMPP servers. These hints are not hard and fast rules, but suggestions which the servers may or may not choose to follow. Best practice is to include the following hints on all OTR messages:
Explicit Message Encryption (XEP-0380)  defines a hint to let clients without OTR support know that this message was encrypted, and display a friendly message instead of the raw encrypted data. It is RECOMMENDED that the client adds this hint alongside every encrypted message
All together, an example OTR message might look like this (with the majority of the body stripped out for readability):
Most clients today provide options to automatically start an OTR session, to manually construct a session at the users request, or to always require the use of an OTR session even if the remote client does not support OTR.
In the interest of user experience, it is NOT RECOMMENDED to start an OTR session with a previously unseen resource or one for which we do not have OTR keys cached without first discovering if the remote end supports OTR using one of the mechanisms described in the "Discovery" section of this document except in security critical contexts where user experience is not a concern.
Instead, it is RECOMMENDED to always allow the user to manually start an OTR session and to indicate that OTR is known to be available when OTR support is discovered by any of the aforementioned mechanisms.
It is RECOMMENDED that the lifetime of OTR sessions be limited to the lifetime of the XMPP session in which the OTR session was established. If a resource associated with either end of the OTR session goes offline (a closing stream tag is received, or a fatal stream error occurs), it is RECOMMENDED that the other end terminate the OTR session.
When an XMPP session that is hosting an OTR session ends, it is RECOMMENDED that XMPP session be completely torn down before the associated OTR session is ended. For instance, when receiving a closing stream tag, clients should send their own closing stream tag (as specified in RFC 6120 ), close the underlying TCP connection (or connections), and then terminate the OTR session in that order. This prevents a race condition in some clients that attempt to automatically establish an OTR session where the OTR session is torn down and then re-established by an incomming message before the XMPP session can be closed.
RFC 5122  defines a Uniform Resource Identifier (URI) and Internationalized Resource Identifier (IRI) scheme for XMPP entities, and XMPP URI Query Components (XEP-0147)  defines various query components for use with XMPP URI's. When an entity has an associated OTR fingerprint its URI is often formed with "otr-fingerprint" in the query string. Eg.
The XMPP Registrar  maintains a registry of queries and key-value pairs for use in XMPP URIs at <https://xmpp.org/registrar/querytypes.html>. As of the date this document was authored, the 'otr-fingerprint' query string has not been formally defined and has therefore is not officially recognized by the registrar.
Thanks to Daniel Gultsch for his excellent article  on the pitfalls of implementing OTR, and to Georg Lukas and Chris Ballinger for their feedback and corrections.
While this document describes an existing protocol which is streamed over XMPP and therefore does not introduce any new security concerns itself, it is worth mentioning a few security issues with the underlying OTR protocol:
Because Diffie-Hellman (D-H) key exchange is unauthenticated, the initial D-H exchange which sets up the encrypted channel is vulnerable to a man-in-the-middle attack. No sensitive information should be sent over the encrypted channel until mutual authentication has been performed inside the encrypted channel.
OTR makes use of the SHA-1 hash algorithm. While no practical attacks have been observed in SHA-1 at the time of this writing, theoretical attacks have been constructed, and attacks have been performed on hash functions that are similar to SHA-1. One cryptographer estimated that the cost of generating SHA-1 collisions was $2.77 million dollars in 2012, and would drop to $700,000 by 2015. . This puts generating SHA-1 collisions well within the reach of governments, malicious organizations, and even well-funded individuals.
This document requires no interaction with the Internet Assigned Numbers Authority (IANA).
No namespaces or parameters need to be registered with the XMPP Registrar as a result of this document.
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The following requirements keywords as used in this document are to be interpreted as described in RFC 2119: "MUST", "SHALL", "REQUIRED"; "MUST NOT", "SHALL NOT"; "SHOULD", "RECOMMENDED"; "SHOULD NOT", "NOT RECOMMENDED"; "MAY", "OPTIONAL".
12. The XMPP Registrar maintains a list of reserved protocol namespaces as well as registries of parameters used in the context of XMPP extension protocols approved by the XMPP Standards Foundation. For further information, see <https://xmpp.org/registrar/>.
13. Daniel Gultsch (Retreived on 2015-07-29). "Observations on Implementing XMPP" < https://github.com/siacs/Conversations/blob/master/docs/observations.md >
14. Bruce Schneier (2012-10-05). "When Will We See Collisions for SHA-1?" < https://www.schneier.com/blog/archives/2012/10/when_will_we_se.html >
Note: Older versions of this specification might be available at http://xmpp.org/extensions/attic/
Add a suggestion to use XEP-0380.
Remove RFC 2119 language other than [NOT] RECOMMENDED, add session ending recommendations, add delivery receipt recommendation.
Initial published version approved by the XMPP Council.