1580s, "restore to a former capacity or standing, or a former right, rank, or privilege lost or forfeited," a back-formation from rehabilitation and in part from Medieval Latin rehabilitatus, past participle of rehabilitare. Century Dictionary calls it "a term drawn from the civil and canon law."
By 1845 as "to bring back to a former condition after decay or damage." The meaning "to restore one's reputation or character in the esteem of others" is from 1847. Related: Rehabilitated; rehabilitating.