mid-12c., from Old Norse ves heill "be healthy," a salutation, from ves, imperative of vesa "to be" (see was) + heill "healthy," from Proto-Germanic *haila- (see health). Use as a drinking phrase appears to have arisen among Danes in England and spread to native inhabitants.
A similar formation appears in Old English wes þu hal, but this is not recorded as a drinking salutation. Sense extended c. 1300 to "liquor in which healths were drunk," especially spiced ale used in Christmas Eve celebrations. Meaning "a carousal, reveling" first attested c. 1600. Wassailing "custom of going caroling house to house at Christmas time" is recorded from 1742.