The Grey Folk were one of the first races to inhabit Alagaësia. It was believed that they arrived after the dwarves and dragons, who were native to the land, but before the elves and humans. They were the first to utilize magic.
At the time of the Grey Folk, magic was difficult to control, because magic was controlled by thinking, and not speaking the words. A stray thought while conducting magic could be devastating. One of the magic users nearly destroyed all of Alagaësia with magic because of this problem. The surviving Grey Folk used their language, the Ancient Language, to bind magic so that it was controlled by speech. The powerful language also prevented the speaker from lying. It is not known how they completed the spell, but many of them contributed to ensure success. Because of this enormous change in the nature of magic, the energy toll was great, and the Grey Folk were consequently diminished as a people. In addition, they (whether on purpose or accident is not clear) left a method of altering magic and the Ancient Language through the Ancient Language's true name.
No records remain of the Grey Folk, so relatively little is known about them. Paolini said that we may see descendants of the Grey Folk in Inheritance and while no descendants of the Grey Folk appeared in person, it is possible that the Soothsayer that Galbatorix referred to was such a descendant, as she was described as being neither Elf nor Dwarf nor human, but something else entirely. It is also possible that a character met was a descendant without us being told. One possible candidate is Angela , as she is described as human yet has seemingly lived far longer than would be expected. She is also revered by the elves, who refer to her as "wise one". She also demonstrates incredible knowledge of magic when she killed the 20 soldiers under Dras Leona, and yet claims to have problems "opening up to the energy that fuels magic". This would be consistent with her being one of the Grey Folk, as after the creation of the Ancient Language they diminished as a people or this could hint that it was her spell that almost destroyed Alagaësia, leaving her reluctant to use her magic.