Source: Francis X. Weiser, Handbook of Christian Feasts and Customs (New York: Harcourt, Brace and World, Inc., 1958), pp. 103, 104. Copyright 1952 by Francis X. Weiser. Used by permission of the publishers.
[p. 103] The mistletoe was a sacred plant in the pagan religion of the Druids in Britain. It was believed to have all sorts of miraculous qualities: the power of healing diseases, making poisons harmless, giving fertility to humans and animals, protecting from witchcraft, banning evil spirits, bringing good luck and great blessings. In fact, it was considered so sacred that even enemies who happened to meet beneath a mistletoe in the forest would lay down their arms, exchange a friendly greeting, and keep a truce until the following day. From this old custom grew [p. 104] the practice of suspending mistletoe over a doorway or in a room as a token of good will and peace to all comers.
After Britain was converted from paganism to Christianity, the bishops did not allow the mistletoe to be used in churches because it had been the main symbol of a pagan religion. Even to this day mistletoe is rarely used as a decoration for altars. There was, however, one exception. At the Cathedral of York at one period before the Reformation a large bundle of mistletoe was brought into the sanctuary each year at Christmas and solemnly placed on the altar by a priest. In this rite the plant that the Druids had called "All-heal" was used as a symbol of Christ, the Divine Healer of nations.
The people of England then adopted the mistletoe as a decoration for their homes at Christmas. Its old, pagan religious meaning was soon forgotten, but some of the other meanings and customs have survived: the kiss under the mistletoe; the token of good will and friendship; the omen of happiness and good luck and the new religious significance.