As you probably know, tobacco originated in the Americas and there are archaeological remains of semi-domesticated tobacco (Nicotiana rustica) throughout North America as far back as 2,000 years ago.
The plant was widely used in Native societies (not just smoking: also chewing, eating, rubbing, and snorting) so it's not surprising that Europeans learned about it very early in their contact. Bartolomé de las Casas in 1527 mentioned that two scouts dispatched by Columbus to explore the interior of Cuba "met many people on the road, men and women, and the men always with men with a firebrand in their hands and certain herbs to take their smokes, which are some dry herbs put in a certain leaf, also dry, like those the boys make on the day of the Passover of the Holy Ghost; and having lighted one part of it, by the other they suck, absorb, or receive that smoke inside with the breath, by which they become benumbed and almost drunk, and so it is said they do not feel fatigue. These, muskets as we will call them, they call tabacos."
While the plants were brought back to Europe in the early 16th century, they were mostly treated as a curiosity and viewed as a medicinal herb to be ingested by eating. In 1571, the Spanish physicial Nicolas Monardes identified some 36 different medicinal uses for tobacco; according to the English translation of his work,
THIS herb, which commonly is called tobacco, is an herb be of much antiquity, and known amongst the Indians, and in especially among them of the new Spain, and after that those countries were gotten by our Spaniards, being taught of the Indians, they did profit themselves of those things, in the Wounds which they received in their Wars, healing themselves therewith, to the great benefit of them
Within this few years there has been brought to Spain of it, more to adorn Gardens with the fairness thereof, and to give a pleasant sight, rather then that it was thought it had the marvelous Medicinal virtues which it hash, now we do use of it more for his virtues then for his fairness.
Most of the cures that Monardes mentions, though, do not involve smoking: instead the tobacco is chewed, made into a kind of syrup, or used as a hot compress.
There are reports of tobacco being grown in herbal gardens in the Netherlands in the 1550s, but it doesn't seem to have been an important item of commerce.
It was not until the last two decades of the 16th century - and particularly in England - that the habit of smoking tobacco with a pipe seems to have taken off. The crucial figures here seem to have been colonial promoters such as Sir Walter Ralegh and Thomas Hariot, who published descriptions of tobacco smoking by the Natives of Virginia (it was originally referred to as "drinking" tobacco).
Shortly before 1590, the English began manufacturing clay pipes as cheap and convenient alternatives to other smoking devices. When a Silesian traveler named Paul Hentzner visited England around 1600, he noted how widespread the practice had become:
The English constantly use the Nicotian plant, which in the American language they call Tabaca (others call it Petun) and generally in this way. They have pipes made of clay for this purpose; in the lower end of these they put the plant, so dried that it can easily be reduced to powder, and light it. They draw smoke into their mouths from the upper end; this comes out again through the nose as if through funnels. It brings with it much phlegm and discharge from the head.
The smoking of tobacco became widespread enough that the English King, James I, published an anti-tobacco tract in 1604 titled A Counterblast to Tobacco, which described it as "a custome lothsome to the eye, hatefull to the nose, harmefull to the braine, daungerous to the Lungs, and in the blacke stinking fume thereof, nearest resembling the horrible Stigian smoke of the pit that is bottomelesse."
The people who were mostly likely to be smokers were sailors, who brought the plant back from the Americas, but also diffused the practice through Atlantic seaports in Europe. The main attraction of the plant seems to have been its health benefits, ironically enough.
As for prices, there was a lot of fluctuation, but as tobacco production took off in the Virginia after 1616 (this was the main centre of tobacco planting in the world, and set the prices for the global trade) we start to see fairly reliable figures.
A chart of tobacco prices for Virginia and Maryland is available here:
http://www.pburgsd.net/cms/lib04/NJ01001118/Centricity/Domain/179/Tobacco%20in%20the%20Colonies.PDF
Note that these are wholesale prices, so the retail price for consumers in Europe would have been higher.
The price of tobacco was much higher in 1618 because of its relative scarcity; as more and more farmers in Virginia and Maryland started planting tobacco, the price declined over the course of the ensuing century.