I thought that it was Don Quixote, or One Thousand and One Nights. But those are the earliest I can think that were actually printed and sold widely as novels. Was there more?
If you allow me to go a bit literary studies on you, I believe the problem with this question is what definition of "novel" you are using. Going with Wikipedia's definition, which is a basic one,
A novel is a long narrative, normally in prose, which describes fictional characters and events, usually in the form of a sequential story.
But in the way we use the term today, we think of a particular kind of fiction that follows a set of rules established in the 18th century, such as verisimilitude, a separation between direct and indirect dialogue, a kind of narrator... Even when a novel doesn't follow this rules, we understand it as a subversion or a response to what a novel should be. It is true that in this loose definition, we can fit many different works of fiction written throughout the ages. Some people cite Apuleius' The Golden Ass (2nd century), or Murasaki Shikibu's Genji Monogatari (ca. 1000) as examples of early novels. I don't know much about Apuleius; however, when we look at Genji, we can read it in a sequential manner, because we are reading it as a "novel", but that is not necessarily the way it was being read, or the way it was distributed at the time when it was first made public. A novel is also supposed to be a prose narrative, but for many centuries, this work was actually used as a poetry handbook. A custom established by the same guy who arranged the sequence of the different episodes in a chronological time-frame.
The problem with this approach is that sometimes we encounter narratives that fail at being novels, because they were never meant to be novels, and they weren't trying to conform to that particular set of requirement. Is the Genji Monogatari a novel? Technically it is, because it can conform to those standards. But it certainly wasn't a novel in the 11th century.
hi! this question is more a job for /r/AskLiteraryStudies; a quick look over there turns up this interesting discussion, which includes several examples, but more importantly the subtle distinctions which may or may not define "novel"
That post is locked now, so if you have followup questions, you can either ask them here & include the user's usernames so they'll be autonotified; create a post there; or PM the relevant user.
The phrasing "the first story ... made into a novel" is kind of weird and confusing. It seems to say "What was the first novel written based on an older story?" Is that what you wanted to ask? Or did you just want to know what the oldest novel was?
Because the word "novel" often means "a new story" rather than a traditional one retold -- that is, the author invented this plot.
Then, by "novel," we can ask do you mean a story written in prose as opposed to a story written in poetry? If it weren't in verse, we could put a number of epics into the classification of novels, like the epic of Gilgamesh (c.2100 BC) or the Iliad (8th C BC). They can be considered to have more of novelistic structure that the many early prose novels of the picaresque type -- which are really short story collections, lacking a plot. (1001 Nights has never been considered a novel in my knowledge. It's a framed collection of shorter stories. It would be like considering Ovid's Metamorphosis a novel.)
Daphnis and Chloe is the only surviving work of the 2nd C AD Greek novelist Longus, and an inspiration for The Princess Bride. Naturally, this implies that he had others, and that there were other novelists (Aethiopica or or Theagenes and Chariclea of Heliodorus, say, from 200 years later). So you can set it way back in the 100s, if you like.
The Tale of Genji (源氏物語 Genji monogatari) was published before 1021, and is considered by many to be "the first novel." At least the first half was by Lady Murasaki Shikibu, whose nickname "Murasaki" is from a character in the novel. The Heian period in which she lived produced a thousand monogatari, of which only 28 survive.
Don Quixote, 1605/1615, is a satire of earlier books, like Amadis de Gaula (original in early 1300s)("Gaula" stands for Wales, not Gaul/France). Amadis is interesting because it was so popular in the Renaissance that one of its locations, the island of California, was applied to a discovered "island" before the head of the gulf was discovered. So, yes, California is a fantasy place, full of gold and griffins, and ruled by Amazons. ;-) Amadis was a huge seller for early printers.
So you are dealing then with all the Matter of Britain (Arthurian romances), the Matter of France (Carlovingian legends) and a lot of other epic stories, rendered into prose in the 12th C and later Middle Ages. Naturally, they didn't make it into print until there were printing presses, but they survived in manuscripts.
Cervantes may be considered the "first modern novelist" but that's if "modern" starts at 1600 (many hold it off until 1650, in which case he's a Renaissance novelist).
The first psychological study novel is considered Pamela, or Virtue Rewarded by Richardson, 1740. At this point, no one argues whether this is a unified novel or a collection of tales in a frame. The plot structure is there.
So there's some of your choices (along with A Journey to the West) depending on what you were asking after.