Alice is a psychedelic drug allowing for hyperrealistic hallucinations, on a chemical level, it's a resynthesization of LSD and is largely ingested in the same way. It started off as an experimental prescription to aid soldiers suffering from Post Traumatic Stress Disorder, but when the research was shelved and the chemists who developed were fired. So they took their recipe and started selling it on the streets, with Alice slowly gaining recreational usage in the San Antonio area, then it slowly spread throughout the South.
The name Alice comes an allusion to the film Alice In Wonderland, with the psychedelic imagery of the movie being associated with the strange hallucinations that the drug provides.