The Bandito was created by the Foote, Cone & Belding Agency, and animated by Tex Avery. The character was voiced by Mel Blanc, who used an exaggerated Mexican accent not unlike another character of his - Speedy Gonzales. The Frito Bandito spoke broken English and robbed people of their Frito corn chips, referencing the "Mexican bandit" cliché often seen in western movies.
Pressure from the National Mexican-American Anti-Defamation Committee and others prompted an update to the character, his broken teeth repaired and his hair combed, and then his complete retirement in 1971. He was replaced by W. C. Fritos, a take-off of old-time comedian W.C. Fields.
On a side note, they used to put Frito Bandito erasers in the multi pack when I was young, I loved those things and was disappointed when they had to stop. :(