Optical bistability is observed in a fiber ring laser with erbium-doped fiber (EDF) as the gain medium. A qualitative explanation about the mechanism of optical bistability is put forward, i.e. the long erbium-doped fiber can be divided into two different parts, where gain saturation and absorption saturation prevails respectively and the absorption saturation has a lower saturation threshold. Furthermore, the gain characteristic of EDF is measured and fitted with a formula derived from the qualitative explanation. At last, a quantitative explanation of the optical bistability is put forward with the gain characteristic of the erbium-doped fiber.