The Mutara Nebula was an interstellar dust cloud located in the Mutara sector. The nebula contained high levels of static discharge and was comprised largely of ionized gases. The combined effect of this makes a starship's sensors highly unreliable and shields inoperable when inside.
In 2285, it was the site of the fierce Battle of the Mutara Nebula. The battle ended when Khan Noonien Singh detonated the experimental Genesis Device inside the nebula aboard the USS Reliant, in an attempt to destroy the USS Enterprise. Captain Spock, however, repaired the damaged reactor aboard the Enterprise, allowing the warp drive to function and saving the ship. The detonation caused matter within the nebula to re-form into the Genesis Planet. (Star Trek II: The Wrath of Khan)
Background information Edit
Recycled footage of the Mutara Nebula, slightly recolored, was reused as the Mar Oscura Nebula in TNG: "In Theory". Later, some visuals of the nebula, turned upside-down and slightly modified, were reused as the Chamra Vortex in DS9: "Vortex". Visuals of the nebula also appear in modified form in certain shots of the Paulson Nebula in TNG: "The Best of Both Worlds".
As for the name of the nebula, it is possible that Mutara comes from the Latin verb Mutarē, meaning "to change".