The tradition started in 1961 as Stephen Bailey, Business Manager of the Chicago Journeymen Plumbers Local Union, discovered that local plumbers were using green dye to locate and fix a leak in the waste line that was emptying into the river. It was dyeing the edge of the river green and it was his idea to have the entire river dyed green for St. Patrick's Day. Read the entire story here.
The dyeing of the river today is actually done by a man named Mike Butler and his crew, a privately funded operation. They pour a secret, EPA approved dye into the river that initially turns the river orange and then to a brilliant emerald green. http://www.greenchicagoriver.com/