In Old English, 'I' was written as 'ic' (pronounced 'itch'). As time passed, it also took on the forms 'ik' and 'ich' - the latter of which is exactly the form it has in modern German.
In Middle English, the �i' sometimes disappeared and the 'ch' bit was often attached to the following verb, giving 'cham' = I am, 'chill' = I will and so on.
All these variations were finally sorted out only on the introduction of the printing-press, which saw the �i' return. We have had capital 'I' ever since Caxton, on the basis that - being so small - the little 'i' on its own, without its �ch', may have been mistaken for part of a neighbouring letter or word.
By Elizabethan times, the �I' was virtually always capitalised. In addition, making it a capital ensured that it would be spoken as a long vowel rather than the short vowel it might have remained if the small �i' form had lasted.