If you investigate the history of the horror movie, you will find that sooner or later the tracks lead back to Das Cabinet des Dr. Caligari, or as it is known in English, The Cabinet of Dr. Caligari.
Das Cabinet des Dr. Caligari is one of the defining works of the German Expressionism, and it is also one of the most thoroughly expressionistic films ever. The sets are twisted, looming, threatening, and induces a dream-like, or perhaps rather nightmarish, feeling into the film. The acting, by several great actors of the time, is on par, as is the plot.
I will not spoil your experience by telling you much about that plot. Suffice it to say that it deals with a somnambulist who is on display as a fair showcase, a mad doctor, and several gruesome murders. Also, things are rarely what they seem.
While not generally considered the first film in the German Expressionism, the film nevertheless had a tremendous impact on the genre, an impact that directly and indirectly carries on to other genres, not least the modern horror genre.
The copy I otherwise link to in this post is the best I have found at the Internet Archive. However, it is a German version with no subtitles. Another good version with English title cards is available, in case your German is out of practice.
This film is best enjoyed with a good musical score. With poor or random music, or no music at all, much of the nerve and intensity of the film will be lost. Fortunately, both the versions I link to are good in this respect. It is much easier to oversee with some defects in the visual quality.
Das Cabinet des Dr. Caligari
Running time: 1 h 14 min
Language: German (no subtitles)
Director: Robert Wiene
Stars: Werner Krauß, Conrad Veidt
Image quality: Acceptable
Resolution: Medium (576×432)
Soundtrack: Excellent; synchronized with the images
Sound quality: Excellent
Best file format: Matroska (673 M)