Forty years ago, on a Sunday morning in late November 1974, a team of scientists were digging in an isolated spot in the Afar region of Ethiopia.

Surveying the area, paleoanthropologist Donald Johanson spotted a small part of an elbow bone. He immediately recognised it as coming from a human ancestor. And there was plenty more. "As I looked up the slopes to my left I saw bits of the skull, a chunk of jaw, a couple of vertebrae," says Johanson.

It was immediately obvious that the skeleton was a momentous find, because the sediments at the site were known to be 3.2 million years old. "I realised this was part of a skeleton that was older than three million years," says Johanson. It was the most ancient early human – or hominin – ever found. Later it became apparent that it was also the most complete: fully 40% of the skeleton had been preserved.

Might Lucy be our direct ancestor, a missing gap in the human family tree?

At the group's campsite that night, Johanson played a Beatles cassette that he had brought with him, and the song "Lucy in the Sky with Diamonds" came on. By this time Johanson thought the skeleton was female, because it was small. So someone said to him: "why don't you call it Lucy?" The name stuck immediately. "All of a sudden," says Johanson, "she became a person."

It would be another four years before Lucy was officially described. She belonged to a new species called Australopithecus afarensis, and it was clear that she was one of the most important fossils ever discovered.

But at the campsite the morning after the discovery, the discussion was dominated by questions. How old was Lucy when she died? Did she have children? What was she like? And might she be our direct ancestor, a missing gap in the human family tree? Forty years later, we are starting to have answers to some of these questions.

Though she was a new species, Lucy was not the first Australopithecus found. That was the Taung Child, the fossilised skull of a young child who lived about 2.8 million years ago in Taung, South Africa. The Taung Child was discovered in 1924 and was studied by anatomist Raymond Dart. He realised that it belonged to a new species, which he called Australopithecus africanus.

The Taung Child was denounced as just an ape and of no major importance

Dart wrote: "I knew at a glance that what lay in my hands was no ordinary anthropoidal brain. Here in lime-consolidated sand was the replica of a brain three times as large as that of a baboon and considerably bigger than that of an adult chimpanzee…" The Taung Child's teeth were more like a human child's than an ape's. Dart also concluded that it could walk upright, like humans, because the part of the skull where the spinal cord meets the brain was human-like.

The Taung Child was the first hint that humans originated from Africa. But when Dart published his analysis the following year, he came in for stiff criticism. At the time, Europe and Asia was thought to be the crucial hub for human evolution, and scientists did not accept that Africa was an important site. The Taung Child was denounced by the prominent anatomist Sir Arthur Keith as just an ape and of no major importance.

Over the next 25 years, more evidence emerged and showed that Dart had been right all along. By the time Lucy came along, anthropologists accepted that australopithecines were early humans, not just apes. So upon her discovery, Lucy became the oldest potential ancestor for every known hominin species. The immediate question was: what was she like?

Lucy had an "incredible amalgam of more primitive and more derived features that had not been seen before," says Johanson. Her skull, jaws and teeth were more ape-like than those of other Australopithecus. Her braincase was also very small, no bigger than that of a chimp. She had a hefty jaw, a low forehead and long dangly arms.

There's no other mammal that walks the way we do

For Johanson, in the field at Hadar, it was immediately apparent that Lucy walked upright, like the Taung Child. That's because the shape and positioning of her pelvis reflected a fully upright gait. Lucy's knee and ankle were also preserved and seem to reflect bipedal walking. Later studies of A. afarensis feet offer even more evidence.

As an upright walker, Lucy strengthened the idea that walking was one of the key selective pressures driving human evolution forwards. The first hominins did not need bigger brains to take defining steps away from apes. Extra brainpower only came over a million years later with the arrival of Homo erectus. Though big brains would clearly be important later, walking remains one of the traits that makes us uniquely human.

"There's no other mammal that walks the way we do," says William Harcourt-Smith of the American Museum of Natural History in New York. "Without bipedalism one starts to wonder what would have happened to our lineage. Would we have happened at all?"

She may have walked like a human, but Lucy spent at least some of her time up in the trees, as chimpanzees and orang-utans still do today. It may be that upright walking evolved in the trees, as a way to walk along branches that would otherwise be too flexible.

It's not clear why Lucy left the safety of the trees and took to the ground. It is thought that savannahs were gradually opening up, so trees were spaced further apart. But the real reason for heading to the ground may have been to search for food, says Chris Stringer of the Natural History Museum in London, UK. In line with this idea, recent evidence suggests that australopithecines' diet was changing.

Lucy herself may have been collecting eggs from a lake

Studies of the remains of food trapped on preserved hominin teeth show that several species, including Lucy's, were expanding their diet around 3.5 million years ago. Instead of mostly eating fruit from trees, they began to include grasses and sedges, and possibly meat. This change in diet may have allowed them to range more widely, and to travel around more efficiently in a changing environment.

Lucy herself may have been collecting eggs from a lake. Fossilised crocodile and turtle eggs were found near her skeleton, leading to suggestions that she died while foraging for them.

An ape with butchering skills

How did australopithecines process all these new foods? Later species like Homo erectus are known to have used simple stone tools, but no tools have ever been found from this far back. However, in 2010 archaeologists uncovered animal bones with markings that seem to have been made by stone tools. That suggests Lucy and her relatives used stone tools to eat meat.

Chimpanzees learn about tool use from their mothers

There have since been heated debates over whether or not the marks were really made by tools. But if they were, it is not really surprising, says Fred Spoor of the Max Planck Institute for Evolutionary Anthropology in Leipzig, Germany.

Spoor points out that modern chimpanzees use several tools, for instance to crack nuts. So if chimps can do it, Spoor says we might expect that A. afarensis – which was basically a "bipedal chimpanzee" – could too. Chimpanzees learn about tool use from their mothers, and Lucy could have picked it up in a similar way.

It would be more impressive if Lucy's species had also manufactured tools, but there is no evidence of that. "Cut marks don't imply a stone has been beautifully modelled into a knife," says Spoor. "It could be a sharp stone that has scraped muscle and fat from a bone."

As well as learning skills from her mother, Lucy may well have learned from other A. afarensis. Later fossil finds from the Hadar area, and comparisons with other primates, suggest that Lucy lived in a small social group. Chimpanzees also live in groups of a few dozen individuals, and A. afarensis may have stuck with this system.

Lucy's childhood was much shorter than ours

Lucy was small compared to males of her species. That has led some researchers to suggest that her society was male-dominated. It may even have been polygamous, like gorilla groups today. In general, males are only significantly larger than females in species where one male can control several females. So Lucy may have lived in a group controlled by one dominant male, who had "a harem, or group of females around it," says Spoor.

It also seems that Lucy's childhood was much shorter than ours, and that she had to fend for herself from a young age.

We know that Lucy was a fully-grown adult, because she had wisdom teeth and her bones had fused. But unlike modern humans, she seems to have grown to full size very quickly, and was only about 12 years old when she died. In line with that, a 2006 study of a 3-year-old A. afarensis suggested that their brains reached their full size much earlier than ours do.

All in all, Lucy looks like a halfway house between apes and humans. She was ape-like in appearance and brain size, but she could walk upright like more advanced hominins that lived later. So where exactly does she fit into our family tree?

There were many species of early hominin, often living side by side

When she was discovered, Lucy was hailed as the oldest direct ancestor of modern humans. "A. afarensis took us one small step closer to that common ancestor we share with chimpanzees," says Tim White of the University of California, Berkeley. "We knew we were genetically incredibly close to chimpanzees, with the last common ancestor we shared with them estimated to be around six million years ago. Lucy had closed a gap in our knowledge."

It now looks like Lucy did not take us as close to our common ancestor with chimps as everyone thought. The latest genetic studies suggest we actually split from chimpanzees much earlier, perhaps as much as 13 million years ago. If that is true, the 3-million-year-old Lucy arrived quite late in the story of human evolution. Older fossils, such as the 4.4-million-year-old Ardipithecus described by White and his colleagues, are closer to our ape ancestors.

But a bigger problem for the idea that A. afarensis were our direct ancestors is that our lineage has turned out to be very complicated. There were many species of early hominin, often living side by side and possibly even interbreeding. When Lucy was found, about seven early hominins were known. Now there are at least 20. We simply don't know which ones eventually led to Homo sapiens, and which were evolutionary dead ends.

It is not even clear where in Africa modern humans evolved. Lucy suggested that Ethiopia was a crucial site. But in 2008 another species of Australopithecus, A. sediba, was discovered in South Africa. It lived around 2 million years ago, around when the Homo genus first emerged. The Taung Child also hailed from the same area, so the find suggested that South Africa could have been our species' birthplace.

We may never find our true ancestor

Despite this, White says Lucy's species is still the best candidate for a direct ancestor, but that more fossil evidence from that time is needed. "I am confident that the fossils will be found in that interval, because I know that in Ethiopia there are already four study areas with fossiliferous sediments of that age," he says.

Other species like Kenyanthropus platyops, which lived 3.5 million years ago, could also be the ancestor, says Stringer. It could also be a fossil that we haven't found yet.

Spoor is even more cautious and says we may never find our true ancestor, because we will only ever find a fraction of life that once existed. But Lucy certainly comes "pretty close", he says.

Lucy's discovery marked a turning point in our understanding of human evolution. Even today scientists are still learning from her. Paleoanthropologists can visit her in Ethiopia's National Museum in Addis Ababa, to run further analyses using new technologies. "She'll keep on giving," says Harcourt-Smith.

Her place in human evolution is assured

According to Johanson, perhaps her most important contribution was to "spark" a wave of research that has led to the discovery of many new species, like Ardipithecus and A. sediba. The number of known species has more than doubled since Lucy, but many parts of the story still need to be filled in, says Johanson. "I know there are several others [species] lurking on the horizon."

Thanks to all these discoveries, we now know that the evolutionary process that led to us was not linear. There was a lot of variation and experimentation along the way, with many species being driven to extinction – most famously the Neanderthals. Johanson says modern humans, for all our abilities, may have been fortunate to have survived it all.

Members of his team will soon be digging for fossils in the Afar region of Ethiopia, close to Lucy's home, as they do each year. It seems likely that this area has more fossils to offer. Even if it doesn't, many fossils that are more complete than Lucy, and much older, have been found since 1974. Nevertheless, Stringer says that "her place in human evolution is assured for the long term."

Donald Johanson spoke to Radio 4's BBC Inside Science. Listen to the full interview.