The Frostbite Engine is a game engine developed by EA Digital Illusions (DICE) that debuted in 2008. It was designed to be able to render high quantities of destructible environments on large & small scales, with later versions being able to fully collapse geometry (such as buildings).
The Frostbite Engine has other capabilities like HDR Sound, which will change the volume of in-game music & sound effects to concentrate on the more important sounds, like bullets, gunfire, vehicles, etc.
It was built from scratch for the Xbox 360, PlayStation 3, multi-core PCs specifically for use in future DICE games. It has DirectX 10 & 11 support for Windows 7.
There are 3 main versions of the Frostbite engine:
Used in Battlefield: Bad Company and Battlefield 1943, this initial build of the engine featured the ability to destroy most of the environment, such as fences and trees, and blow variable sized holes in walls & roofs of buildings.
Used in Bad Company 2, this upgraded version features bullet drop (gravity effects bullets over distance) and "Destruction 2.0," the ability to collapse whole buildings (killing enemies within it). The multiplayer portion of Medal of Honor runs on this engine as well, but collapsible buildings and destructible walls are not featured.
Frostbite 2 was built from the ground up for use in Battlefield 3.
Note that DICE began stylizing the naming of Frostbite without point releases ie. Frostbite 2, not Frostbite 2.0.
Battlefield 4 will be the first game to be released with Frostbite 3 technology. It is due Q4 2013.