The Invisibility Bomb is a red bomb that you use to become invisible for 15 seconds. They are closly related to Spooky Potions. The recipe is retrieved by Master Chi. You must be level 20 or higher to use them.
It has been suggested that Invisibility Bombs were originally going to be called 'Smoke Bombs', but that the name was changed to Invisibility Bombs before they were placed in the game. A few characters in Chim Foo call these Smoke Bombs, which refers to that thesis.
There was originally a glitch with the smoke bombs making it so that the Stone Dragons could still see you when you were invisible, but this was fixed in a June update.
There is still a current glitch where if you use the bomb then change your clothes, your monkey will glitch out. It'll recolour your clothes and etc.