In the First Age, a race of tortured spirits came to Beleriand. They were thralls of Melkor and their origin isn’t known. It is certain that these spirits entered the forms of wolves by sorcery and it was a fearsome race with glowing wrathful eyes. They could speak and understood both Black Speech and Elven tongues.
In the long wars of Beleriand the greatest numbers of these Werewolves came under the banner of Sauron to the Noldor tower on the River Sirion, and it fell before them. Thereafter, the tower was called Tol-in-Gaurhoth, the “isle of werewolves”, and Sauron ruled there.
In the Quest of the Silmaril, Huan the Wolfhound came to Tol-in-Gaurhoth and slew many werewolves. At last one named Draugluin, lord of the werewolves, came to fight Huan. There was a great battle and in the end Draugluin fled to the tower and Sauron’s throne and died.
Sauron was a shape-shifter and he took the shape of a werewolf himself and went to fight Huan. Huan held the bridge though and took Sauron by the throat, and Sauron was unable to free himself by sorcery or strength and surrendered the tower to Beren and Lúthien, whom the Wolfhound served. The evil enchantment was removed from Tol-in-Gaurhoth and the werewolves lost their wolf-forms. Sauron fled in the form of a great vampire bat and the power that held the realm of werewolves was broken in Beleriand forever.