error: no such file to load — readline 

The GNU Readline library provides a set of functions for use by applications that allow users to edit command lines as they are typed in. (…) The Readline library includes additional functions to maintain a list of previously-entered command lines, to recall and perhaps reedit those lines, and perform csh-like history expansion on previous command.

For more info about read line visit http://bogojoker.com/readline/

When I started  rails console: I got an error saying:
no such file to load — readline (LoadError).  At that time i was on Ubuntu 10.04 system with rvm, rails3, ruby 1.9.2-p290.
I tracked down redline in my ruby source ~/.rvm/src/ruby-1.9.2-p290/ext/readline and ran:

ruby extconf.rb

(Note: here ruby-1.9.2-p290 is the default ruby in rvm. Replace with your ruby version if you have to.)
This let me know I was missing these two packages:

libncurses5-dev and libreadline5-dev

Install these packages with this command

sudo apt-get install libncurses5-dev libreadline5-dev

Then run the command from before:

ruby extconf.rb

Note :

You should be in the  ~/.rvm/src/ruby-1.9.2-p290/ext/readline

directory while entering this command.

I think you should get all passing.

make
make install

Hurray now rails c works.