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The currency of Bahrain is the Dinar, made up of 1,000 Fils. The Dinar is pegged to the U.S. currency at 1BD= U.S. $2.65. (1 USD = 0.376 BD) Notes come in denominations of BD 0.500, BD 1, BD5, BD10, and BD20.
There are coins in BD 0.100, BD 0.050, BD 0.025, BD 0.010 and BD 0.005 (last two are the equivalent of pennies - rarely used. Additionally BD 0.500 [aka 500 fils] has been discontinued).
If you are travelling in Bahrain, plastic is recommended; most ATMs will dispense cash to Visa and Mastercard. Travellers cheques can be changed at most big bank branches, which now tend to be open six days a week, being closed on Fridays.
There are also Currency exchange counters everywhere in the capital, Manama, although less so in outlying areas.
Change all of your Dinars before you leave, into dollars or euros or your local currency (you can do so at the airport) - Currency conversions for Dinars may vary wildly from 98% of their value to as low as 40% overseas. Since it is not a very common currency, it can be difficult to exchange at all.
* Images sourced from Wikipedia
Left-to-Right: 5 fils, 10 fils, 25 fils, 50 fils, and 100 fils.
The Central Bank of Bahrain has issued new currency notes as of March 2008.