The discovery of the quantum Hall effect (QHE)1,2 in two-dimensional electronic systems has given topology a central role in condensed matter physics. Although the possibility of generalizing the QHE to three-dimensional (3D) electronic systems3,4 was proposed decades ago, it has not been demonstrated experimentally. Here we report the experimental realization of the 3D QHE in bulk zirconium pentatelluride (ZrTe5) crystals. We perform low-temperature electric-transport measurements on bulk ZrTe5 crystals under a magnetic field and achieve the extreme quantum limit, where only the lowest Landau level is occupied, at relatively low magnetic fields. In this regime, we observe a dissipationless longitudinal resistivity close to zero, accompanied by a well-developed Hall resistivity plateau proportional to half of the Fermi wavelength along the field direction. This response is the signature of the 3D QHE and strongly suggests a Fermi surface instability driven by enhanced interaction effects in the extreme quantum limit. By further increasing the magnetic field, both the longitudinal and Hall resistivity increase considerably and display a metal-insulator transition, which represents another magnetic-field-driven quantum phase transition. Our findings provide experimental evidence of the 3D QHE and a promising platform for further exploration of exotic quantum phases and transitions in 3D systems.