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Shuddering Demon Bone was a Legendary Crafting Material in Diablo III. It requires a Character Level of 1 to use, is account bound, and may be stacked up to 1000 times. It was required for the crafting of the Archfiend Arrows legendary quiver. As of patch 2.0.6., it no longer drops, and existing Bones may be sold for 50,000 Gold.
The item only dropped from unique Morlu Berserkers:
"The fact that Morlu are often found carrying the bones of demons perplexes me. Though these fiery apparitions were once men, any vestige of intelligent thought they once had is long gone. So what drive other than serving their masters could remain within them? I must think on this." — Deckard Cain