The Paladins of Zakarum, also known as Protectors of the Word, Hand of Zakarum or the defecting Order of Paladins, fought against their own leaders as well as Diablo during the events of Diablo 2. These holy knights will not make a reappearance in vanilla Diablo III as a character class. They may return as a playable class in an expansion, but this is not confirmed.
It has been strongly hinted that some Paladins will be sighted as NPCs in Diablo III.
The Knights of Westmarch who felled the armies of mighty Leoric are pure at heart and closely follow the teachings of Zakarum, the Religion of the Light. A battle-ready warrior for whom faith is a shield, the Paladin fights for what he believes to be right. His steadfastness gives him powers to bestow blessings to his friends and wreak cruel justice on foes. There are those who call the Paladin an overwrought zealot, but others recognize in him the strength and goodness of the Light.
During the mid-twelfth century, after the Church of Zakarum had gained prominence in the East, the Church decreed that the visions of Akarat would be spread throughout the known world in order to redeem the masses. Thus, the church selected a group of its most charismatic and devoted priests and sent them on a mission to proselytize the people of the West.
Unfortunately, the Church had not prepared these men for the rigors of travel or the hazards of the world. Those priests who survived their missions recounted tales of harsh weather, inadequate supplies, attacks from bandits, and even encounters with horrible monsters. To ensure the success of future missions, the Church set about training holy warriors, Paladins, to accompany and safeguard their missionaries. These "Protectors of the Word" proved to be more successful at converting the native peoples than the Priests they were assigned to defend. Impressing the locals with daring deeds, powerful weapons, and martial prowess was far more convincing than the condemnations of a soft-spoken monk. However, once the Word had been spread to every major city of the West, the Protectors of the Word faded from public view.
Some decades later, Paladins were again called into service. During the height of the Time of Troubles, the Church commenced a second campaign of conversion. This time, however, unconvincible were deemed to be evil. The Zakarum inquisition, spread through the lands like a tempest, laying waste to all suspected of demonic possession or corruption. Leading this crusade was a new generation of Paladins, known as the "Hand of Zakarum". These cavaliers of righteousness swept through the lands, expunging the taint of demonic contamination wherever they found it.
In the midst of this bloody crusade, a rebellion arose within the ranks of the Paladins of Zakarum. The rebels condemned the methods of the Inquisition, proclaiming that their new Order of Paladins should protect the innocent, and that the evil corruption they fought was merely evidence of their forebear's failure. They resolved to fight the true source of corruption. The Three Prime Evils - Diablo, Baal, and Mephisto. And so, these rebellious Paladins left their Zakarum brethren and ventured West.
Paladins use holy magic as gifted by the High Heavens. They must maintain strictly ordered lives, constantly upholding the cause of Virtue and Light. They must never succumb to worldly temptations lest they risk being deceived into following false lights -- demons masquerading as heavenly beings.
Paladins may use their skills to increase their prowess with sword and shield, as well as lend blessing "Auras" to themselves and to any who join them. They are particularly effective against the Undead, as they know many holy incantations effective against these creatures.
The Paladin character will not return in Diablo 3, though a Paladin might be seen in the game  (as an NPC?), and Blizzard has not ruled out any of the characters from returning in Diablo 3 expansion packs. One strike against the Paladin returning is that Auras will be in Diablo 3, most likely as Monk skills, which would seem to make the Paladin's best known skill type redundant.
This is just part of the material available on this topic. The Diablo2Wiki Paladin article is available in the Diablo 2 wiki, which has a specific Diablo I and Diablo II focus. A lot of information unique to the first two Diablo games is available there. You can find it here: