One day in June, about 20 engineers and managers at the startup company Nest went on a field trip. They didn’t need to pack a lunch. Their destination: a storage closet near the bathrooms at their new headquarters in Palo Alto. Only a half-dozen or so people could fit inside at the same time, so they entered in shifts. With the door closed and the closet light off, a ring of soothing light appeared on the ceiling, softly illuminating their upturned faces. Then an engineer stood on a stool and released a puff of smoke from the end of a wand that looked like a low-rent magician’s prop. The disembodied voice of a woman issued from above. “There’s smoke in the bedroom,” she said. She didn’t sound panicky, but you could tell she meant business.

So does Nest. Two years ago, CEO Tony Fadell, an Apple alum (he was the lead inventor of the iPod), raised a reported $50 million and considerable interest in Silicon Valley when his startup transformed the ho-hum thermostat into a chic object of desire.

Since its October 2011 release, hundreds of thousands of people have bought the pricey device ($249), which analyzes user behavior to minimize energy use. Nest has become the rare eco-conscious startup to thrive. The big question became: What would Nest do as a follow-up?

The answer is, of all things, a smoke detector. The $129 Nest Protect, launching this fall, is a handsome white square with rounded corners and an op-arty sunflower pattern. When smoke or carbon monoxide reaches a government-specified level of peril, the device performs like every other alarm. But what sets Nest Protect apart is its vocal warning before things get that bad. This feature has the potential to save lives: Millions of people intentionally disable smoke alarms because they’re fed up when the alert blares at the slightest hint of charred bacon. Nest’s verbal alert gives owners a chance to head off a heart-palpitating klaxon call when none is warranted, making it less likely they’ll rip out the batteries in disgust. And the Nest Protect will never wake you at 3 a.m. to inform you that the battery is low—instead, when the lights go down at bedtime, its gentle ring of light provides a status report. A green glow means all is fine; a yellow circle tells you that it’s time to replace the battery.

With this second product, it’s now clear that Nest is attempting to create a new kind of appliance. On the outside it’s sexy, but its workings are all about exploiting the growing infrastructure of sensors and connectivity around us. The algorithms created by Nest’s machine-learning experts—and the troves of data generated by those algorithms—are just as important as the sleek materials carefully selected by its industrial designers. By tracking its users and subtly influencing their behavior, the Nest Learning Thermostat transcended its pedestrian product category. As improbable as it sounds, Nest has similar hopes for what has always been a pretty prosaic device, the smoke alarm. Yes, the Nest Protect does what every similar device does—it goes off when smoke or CO reaches dangerous levels—but it does much more, by using sensors to distinguish between smoke and steam, Internet connectivity to tell you where the danger is, a calculated tone of voice to convey a personality, and warm lighting to guide you in the darkness.

In other words, Nest isn’t only about beautifying the thermostat or adding features to the lowly smoke detector. “We’re about creating the conscious home,” Fadell says. “To take a truly important device that has had no great innovation and make that device really, really great.” Left unsaid is a grander vision, with even bigger implications: many devices sensing the environment, talking to one another, and doing our bidding unprompted.

Tony Fadell. Zen Sekizawa

Fadell got the idea for Nest a few years ago. The rare engineer who juggles design, reinvention, and the latest technology, he had left his post as leader of the iPod and iPhone teams at Apple and was taking time with his family. After a year spent mostly abroad in Paris, they returned to the US. Fadell was designing their second home and wanted every aspect of it to be technologically advanced, green, and simple—not so surprising for someone whose natural bent for excellence was honed by a nine-year master class with Steve Jobs.

He was taken aback to find that, with few exceptions, household appliances hadn’t progressed much since the days of black-and-white 1950s family sitcoms. The field, he realized, was ripe for a reset. The Internet of Things was coming, an era when everything from light bulbs to heart monitors would become connected and spectacularly interactive, and Fadell saw the opportunity to build this new reality right into people’s homes. By applying exquisite design and new technology platforms like Wi-Fi and cheap sensors to everyday objects, you could make them perform better and build sophisticated services that took advantage of all the data that living in a house could produce.

Fadell started Nest with a young engineer he knew from Apple, Matt Rogers, and recruited additional accomplished engineers and designers from Apple, Google, and other big firms. His pitch was colored green. (One hire, Shige Honjo, the lead engineering program manager for iPhone, viewed it as a choice between buying a beach house with Apple earnings or helping save the world by joining Nest.) Working in stealth, at first from a Palo Alto garage, the company created its distinctive, connected thermostat—its bright circular display the unmistakable creation of the mind behind the iPod. Using artificial intelligence and psychological incentives, the Nest thermostat has spurred users to save some 1 billion kilowatt-hours. (That’s enough to power the entire US for more than 15 minutes.)

The Nest system draws its brainpower from sensors and artificial intelligence algorithms that capitalize on user behavior in ways no dumb thermostat could imagine. For example, Nest’s motion sensors can tell when people are around. After months of use in thousands of homes, the company has gleaned the fact that people who leave the house in the morning tend to be gone all day, while those who leave in the afternoon are more likely to return home more quickly. Thus the thermostat more intelligently applies the Auto-Away function, which is a big energy saver. It also learns how to take into account customers’ personalities. Some people are what Nesters call “crazy touchers,” fiddling with the settings seven times a day or more. “We actually make the device more or less sensitive depending on how often you touch it,” says Yoky Matsuoka, VP of technology. Earlier this year, Nest used its data and skills to implement Rush Hour Rewards, a service launched in cooperation with power companies; Nest owners who sign up for a conservation-minded regimen save money while easing demand when energy consumption peaks. “The endgame is that Nest becomes the brains of the human energy system of the future,” says David Crane, CEO and president of NRG Energy, one of Nest’s partners.

From the outset, Fadell maintained that Nest was not a thermostat company but one devoted to transforming people’s lives, one household gadget at a time. Almost as soon as Nest’s premiere product took off, people began speculating what its next offering would be. Nest owners themselves had plenty of ideas. Fadell had a baseline question for evaluating every proposal: “Would this be a cherished product? Can it be more than a rational purchase—can it be an emotional one?”

Certainly a combined smoke and carbon monoxide alarm system checks the box on “rational.” It’s essential, even lifesaving. The market is huge, given that building codes require these devices and people have to buy them, often in multiples. And Fadell found that, as with thermostats, the current models stunk. “The smoke alarm is the most annoying product in your home,” he says. “It’s ugly, it’s unloved, no one looks at it.”

Three things came to mind to improve upon, says Matsuoka, a MacArthur genius award winner who left Google to join Nest. The first, she says, involved safety, its core function. The second item was minimizing nuisance alarms, or at least the cardiac-inducing shrieks. The third involved the heart in a different way: “People now hate their smoke alarms,” she says. “We asked ourselves how to make it into something people can love.”

The first and second items were intertwined: To improve safety, Nest had to find a way to thwart false alarms, which lead people to tempt fate by disconnecting their units. The company’s solution is the pre-alarm heads-up. Nest Protect detects the problem before it reaches alarm-triggering levels and informs you, deploying its reassuring yet authoritative prerecorded human voice. Users can forestall the full-scale siren of the alarm with a wave of a hand under the device. This “gestural hush,” detected by motion sensors in the smoke detector, gives them some time to deal with the offending situation. When the air returns to normal, the voice delivers an all-clear message and the device glows green.

Nest Protect also knows when a warning isn’t necessary. By analyzing sensor data (things like smoke, heat, and carbon monoxide levels), the system determines whether a situation is something to be concerned about. Eventually, having users specify where in the house the device will be installed could play into it too. If a unit is in the bathroom, its sensors could understand that the steam from a shower isn’t anything to warn people about. The devices have the capability now, but Nest has to wait on regulatory changes to activate them.

And because Nest devices are connected to each other by Wi-Fi, the voice can also tell you where danger lies. If there’s a problem in the kids’ bedroom, every device in the house will tell you just that.

Nest believes that voice communication boosts safety. The company cites a study by Australian researchers that indicates children are more likely to sleep through a standard alarm than a human voice. But introducing language into a smoke alarm system was a surprisingly complex step involving engineering, psychology, and thespian prowess. Nest scripted its brief messages carefully and auditioned its voice actors as if it were casting the next Hunger Games movie. User experience designer David Sloo asked for a female voice because it projects better though the device’s small speaker. For the American English version (eventually Nest will use a voice native to each market), he chose a 37-year-old mother of a toddler. Somehow, Sloo felt, a maternal characteristic shone through.

Nest also weighed price carefully. Its experience with the thermostat showed that people will pay several times the price of a conventional device for a sexy, high tech, high-performing alternative. It hopes for the same with the Protect. At $129, it costs far more than a simple smoke alarm, which can go for less than $20, and it’s still expensive compared to combo smoke–CO detectors, which typically cost under $60. Nest’s pitch is that it is delivering something incomparable, with Wi-Fi, multiple sensors, pre-alarms, and an emotional tug that transforms a mechanical wallflower into a beloved digital blossom. Still, it’s a smoke alarm. “We knew we couldn’t go higher,” Fadell says of the price.

Tony Fadell barrels into a conference room for the weekly meeting to discuss UX—the user experience. It’s June, only a few weeks before the Nest Protect proto-types are supposed to roll off Chinese assembly lines. “All right!” he says, giving a verbal fist-pump to the room. The 20 engineers and managers hardly need the boost—they’ve been wired on coffee and adrenaline for months. The product still awaits approval from UL (Underwriter’s Laboratory), the standards-certifying company. The app accompanying the device isn’t done yet. The prototypes aren’t quite right. But since Nest has been through the experience of shipping hardware before, the group seems confident, if frazzled.

Projecting his slide deck on a huge monitor, Sloo gives a status report on a list of tasks. Those completed are tagged in green, those progressing without problems are yellow, and the few yet to be tackled are red. For example: How much information will be packed into the app that accompanies the device? Fadell’s responses are guided by a single principle: Make it simpler. When one engineer suggests a new feature in the app, Fadell’s countenance darkens.

“No,” he says. “We’re not talking about version two yet. We want to ship!”

Nesters say the biggest challenge they faced in reinventing the smoke alarm was dealing with regulations, extensive requirements likely exceeded only by those for drugs and automobiles. “We’ve actually had to spend the majority of two people’s time on working with UL to understand the rules,” says cofounder and VP of engineering Matt Rogers.

The first prototype included vocal pre-alarms as well as a suite of eight sensors, including a smoke detector, a sensitive nose for CO, and technology that recognizes humidity, temperature, activity, and light. It had Wi-Fi. It had a battery designed to last for years and be replaced off the shelf for $10 to $15. (There was also an option for a more complicated installation process to connect it to the home’s electrical wiring.) Fadell, though, was disappointed. “It just looked like a box you put on the wall,” he says. “There was no emotion in it.” He sent it back for a redesign.

Remie Geoffroi

The Nest Protect went through several more iterations, retaining pretty much all of the early features but improving its design and functionality. One of the keys to eliciting an emotional response from users was the night light feature, called Pathlight. As the unit detects someone walking by, the ring at its center glows just long enough to illuminate the immediate area. Features like this, Fadell says, change the relationship between people and their smoke alarms: Something activated only in time of stress becomes a more constant, nonthreatening presence that guides you through the darkness.

But the most interesting aspect is one that people won’t notice. The Nest Protect, like the Nest thermostat, relentlessly collects data, which the company interprets to make its devices smarter and shape future offerings. With eight sensors in each device, the Protect has capabilities unprecedented in a home appliance, and smarts to match. For instance, to correctly interpret the hand wave, the device has to understand what kinds of movements are directed toward it, as opposed to motion that is unrelated. “We make sure we don’t hush the alarm if people are running around like chickens because they’re panicking for a real fire,” Matsuoka says.

And if people have both Nest products, they work together. While the company’s wares are purchased as stand-alones, they will become more powerful as additional home appliances become smart and connected—even if they are as disparate as a smoke alarm and a thermostat. For example, if the Protect senses dangerous carbon monoxide levels, it will tell the Learning Thermostat to shut off the heating system, the probable cause of the danger. Also, as the Nest Protect sensors detect motion, the device shares that information with the thermostat, allowing it to better understand the habits of its owners. The thermostat can thus employ its energy-saving Auto-Away function more effectively.

Seen in a different light, making your home conscious in the way that Fadell describes could arouse privacy and security concerns. After all, Nest Protect is capable of figuring out when you’re cooking a smoky dish like bacon. It also has a pretty good idea that you’re taking a shower. Add this to information provided by the Learning Thermostat and there’s a whole new corpus of digital exhaust waiting to be analyzed by Big Data specialists. Nest maintains it has taken precautions to make sure that hackers can’t take control of its devices. (Board member and investor Bill Maris of Google Ventures says that some of Google’s security team helped stiffen Nest’s safeguards as a side project.) And Nest says that it has not gotten any government requests for data. The information that the thermostat and the Protect collect will be used to optimize a home’s efficiency, comfort, and utility.

Of course, none of this will happen if people decline to buy these devices because they cost too much or seem to throw too much technology at what appears to be a simple problem. But doubters had similar concerns about the thermostat. Nest’s great promise is to vivify all the dumb, banal, and annoying products in our lives with excellent design, connectivity, learning ability, even personality. As these common household devices begin to burst with charm and intelligence, our homes may come to resemble a real-life Pixar movie in which toasters, light bulbs, and vacuum cleaners all vie for best supporting roles in the category of smart appliance.

Nest hopes to foment this transformation one mundane item at a time, until we see those things in a new, compelling light. “When we set out to build the iPhone, people said we should buy a cell phone design team and apply the Apple magic to it,” Fadell recalls. “I said, no—what we’re doing is building hardware, software, and services, with a little bit of phone in it. That’s what we’re doing here at Nest. Protect has a little bit of smoke and CO detector in it, but you really need those other things—algorithms and sensors and connectivity and apps and data—to reinvent the category. Disruptive technology isn’t a better sensor, it’s about this whole network of things.”

As long as people’s alarm bells don’t go off at paying $129 for a smoke detector.