Although the yo-yo is an undeniably ancient toy there is no proof that it is the second oldest toy as claimed. However, very few records remain about its origins due to the fact people in the past have not considered yo-yos worth writing about.
The origin of the yo-yo is still under argument, but documentaries that have been made show that it came from Greece. It is rumored that it was used as a weapon for hunting game or other land animals. Although physics may prove the use of the yo-yo as a hunting tool to be ineffective, the concept of being able to retry a missed throw of an object was still an amazing feat. But people still have, to this day, believed it to be a weapon. The yo-yos was actually first made by the Duncan yo-yo demonstrators in the 1930s and the yo-yo today is now considered a weapon due to the Duncan brothers making up the rumor of it being a weapon, this was done as a marketing strategy. Since the time of the Duncan brothers' making of the rumor, people have tried to use it as a weapon but in all cases it has failed. The rumor still stands today and many people still believe but it in fact isn't more than a child's toy.
Some historians believe the yo-yo originated in China in approximately 1000 BC. Although there are no formal records of the yo-yo, there is proof that the diabolo, a toy that is part-yoyo, part-top was developed in China which has much in common.
Some records claim that the word 'yo-yo' came from the word 'come-come' in the ancient version of Tagalog, a Filipino language. Some linguistic experts say that the name 'yo-yo' is Oriental in origin, supporting the theory that China was the birthplace of the yo-yo.
The first historical document featuring a yo-yo-like device was in Greece dated to 500 BC, and so some historians argue that the Greeks invented the yo-yo. These feature Greek discs which are arguably similar to a yo-yo which can be seen in Greek museums, such as the museum of Athens. Some historians argue that these were used for spools for thread or hanging drapes due to the fact the discs were ceramic which could break during play. There is, however, a painting found on a Greek vase with what appears to be a boy playing with a yo-yo, that may support the use of these discs as play.
It is noted in a 1916 newspaper article that colonizing Spaniards introduced the spin top to the local tribes when trying to describe the shape of the Earth and how it rotates in space. During those times, yo-yos were traditionally handmade from carabao (Filipino Water Buffalo) horn. 
Yo-yos became very popular in Europe in the late 18th century, having probably arrived there via India. It enjoyed popularity with the French nobility, with many famous people having used them. It is worth noting that the yo-yoers in this time period are recorded as being adults, who referred the yo-yo as a 'Bandalore' or a 'Quiz'.
In 1791, the Swedish Enlightenment writer Johan Henric Kellgren mentions the yo-yo as 'joujou de Normandie' in the poem "Dumboms leverne". Kellgren places its invention roughly around the middle of the century. The French word 'joujou', possibly derived from 'jouer', to play, thus appears in Europe roughly 170 years before it was supposedly imported from the Philippines.
A patent in 1866 by James L. Haven and Charles Hettrick showed a new way of making a yo-yo using a central rivet to hold the two halves together, enabling the first metal yo-yos to be created. This patent demonstrates that there were yo-yos in the USA before this, but those were referred to as 'Whirligigs' or 'Bandelores.' In 1867, Charles Kirchhof (a German immigrant living in the USA) patented and manufactured a yo-yo-like toy that he referred to as a "return-wheel", although he did not manage to sell a great number. Some other patents include edible bandelores that can be eaten, except for the string, of course.
In 1916, an article in the December issue of the El Paso Herald describing how the Philippine School of Arts and Trades would distribute their mass-produced goods (yo-yos among them) to American children, represented the earliest use of the term in the USA. This is referenced in a famous trademark battle from 1929-1932. 
The same year, an article was published in the Scientific American Supplement with the title of "Filipino toys", which showed how to make a yo-yo.
In 1928, Pedro Flores started selling yo-yos under the name "yo-yos", the name used in the Philippines. He called his business the Yo-yo Manufacturing Company which operated in Santa Barbara. Pedro trademarked the term 'yo-yo' and used the refined Philippine design of the yo-yo, by looping the string around the axle instead of tying it as it was done previously. In doing this, he introduced America to the fundamental yo-yo trick, the sleeper. Pedro Flores printed "patent applied" and "patent pending" on many of his yo-yos, despite him not possessing any actual patent on his products, presumably to discourage other toy manufacturers from producing yo-yos.
Due to the number of new possibilities for tricks, Pedro had also set up competitions to demonstrate the new tricks that could be done. However, his competitions were quite different from modern yo-yo contests, as these competitions were more about endurance than trick complexity. The winner was the yo-yoer who could keep the yo-yo moving up and down without missing. This resulted in some competitions lasting a very long time, with two experienced yo-yoers not giving up, resulting in the winner being selected by drawing straws. These competitions also featured contests of who could throw their yo-yo the furthest with it returning fully and who could do the greatest number of perfect spins during five minutes.
The July 1929 issue of Popular Mechanics features an Amateur Mechanics section on how to make a yo-yo. 
Around 1930, businessman Donald F. Duncan bought out Flores and so obtained the rights to the trademark "yo-yo". The precise date is uncertain but the "Yo-Yo" trademark was transferred in 1932. Other yo-yo companies during this period had to use terms such as 'return tops', 'whirl-a-gigs' or 'twirlers'. Duncan quickly acquired the largest share of the yo-yo market, with 85% of all yo-yos sold in this period being produced by Duncan.
In 1965, Duncan got into a legal battle over the use of the term 'yo-yo' with Royal, resulting in the court ruling that the term had become generic and so it could be not trademarked. As a result of the cost of fighting the lawsuit, as well as an expensive investment in the means to produce plastic yo-yos, Duncan became bankrupt and its assets were sold, including its products and goodwill to Flambeau Plastics Company, which now produces Duncan yo-yos. The Duncan equipment would go to Strombecker Toys, which produced yo-yos under the Medalist name for a number of years.
In 1980, Mike Caffrey applied for a patent on an auto-return mechanism for a yo-yo that consisting of several different embodiments for an internal clutch. This US patent (#4,332,102) was issued to Caffrey on June 1, 1982. The first commercially available yo-yo based on this mechanism was the Yomega Brain in 1984.
There exists an interesting story pertaining to the development of the first auto-returning prototype. Caffrey hired engineer, Bill Lakin, to develop a working prototype around his pending patent. That first prototype's design was seriously flawed, as the central spool was so large that virtually no wound-up string engaged the parallel, internal yo-yo halves. When this prototype was thrown, the clutch would open just inches from the player's hand, then would proceed to fall without imparting any additional rotational force upon the yo-yo. Caffrey devised an ingenious "work-around" to test the viability of the clutch; he made an 11' string that DID fill the spool and engage the internal parallel faces. Caffrey threw this modified yo-yo from the roof of his father's house in Tucson, AZ. Not only did this long string get the yo-yo prototype rotating, the clutch closed at the proper time, returning the yo-yo more than 5' up the string. Lakin designed a second prototype with the right-sized central spool. Yomega's original Brain yo-yo was developed around that second prototype.
In 1981, Duncan released their World Class yo-yo, which featured a couple of innovations, one of which would one day become standard. The World Class' axle featured a special coating that, when combined with scientifically rim-weight Inertia Rings, allowed it to spin longer than anything else and even setting a former Guiness World Record for the longest-spinning yo-yo.
In 1984, the first ball bearing yo-yo was produced by Svenska Kullagerfabriken (SKF) in a promotion, marking the beginning of a huge change to yo-yo design. However, the effect of this innovation would not be appreciated for about 10 years. The same year, Tom Kuhn introduced the Silver Bullet, the first yo-yo to feature a full-metal body machined from aluminum.
On April 12th, 1985, a yellow plastic Duncan Imperial became the first yo-yo in space, as part of a series of experiments called "Toys in Space", where various toys were tested to see how weightlessness affects them. Originally, a Tom Kuhn No Jive 3-in-1 was to be the first yo-yo in the experiments, but it was rejected for not meeting fire safety requirements.
In 1989, Yomega releases the Fireball, which featured a plastic transaxle sleeve over a metal axle, allowing it to spin three times longer than a standard fixed axle yo-yo. This yo-yo would come to be one of the most popular in the 1990s.
In 1992, the first World Yo-Yo Championships were held, and the contest itself included true freestyle. After this, freestyles became a major part of yo-yo competitions. In 1996, the first USA yo-yo event with a freestyle was held at the US National Yo-Yo Contest.