The ruling of celebrating the Prophet's Birthday
The year of his noble birth
According to the most correct opinion of the scholars, the Prophet was born in the city of Makkah in the year of the Elephant (in the year 571or 570CE), in the month of Rabee' Al-Awwal.
The day of his birth
There is an agreement amongst the scholars that the Prophet was born on Monday, since he was asked about fasting on a Monday, and he said: "On that day I was born and on that day Revelation descended upon me." [Muslim and Ahmad]
However, as regards the exact date of his birth, then the scholars have differed about this. Despite the common belief among people that he was born on the 12th of Rabee' Al-Awwal, yet the only substantiated fact regarding this date is that it is his death date.
Imaam an-Nawawee (d.676H) – - said: "There is an agreement that he was born on Monday in the month of Rabee' Al-Awwal. There is a difference of opinion whether this day was the 2nd, 8th, 10th or 12th day of the month - and these are the four most well-known opinions concerning this."
Events at the time of his birth
Certain miraculous events are reported to have occurred at the time that the Prophet was born. However, most of them are not authentically related, rather they are weak or fabricated and therefore cannot be relied upon as decisive proof; such as the narration which relates that some of the galleries of Kisraa's (the Persian King's) palace broke-up and collapsed, that the sacred-fire of the Magians died-out and that some of the churches on Lake Saawah (in Syria) collapsed and sank down.
However, it is authentically related that the Prophet said. "I am a result of the supplication of my father Ibraaheem and the glad-tidings brought by 'Eesaa 'may Allah exalt their mention. And my mother - when she bore me - saw that a light shone out from her, which lit up the palaces in Syria .. " [Al-Haakim]
Celebrating the day of his birth
Imaam al-Faakihaani (d.734H) – -said: "Celebrating his birthday has no basis in the Book (Quran) nor the Sunnah, nor is the action recorded from any one of the scholars of this Ummah; those who are taken as examples to be followed and who cling to the narrations. Rather it is a Bid'ah (innovation), which was introduced by the Battaaloon (a deviated sect from the Faatimids).
As regards to the origins of this newly-invented celebration, then some of the research scholars have stated that the first person to innovate this practice was 'Umar ibn Muhammad al-Mulaa in the city of Mawsil in Iraq, during the fourth century, as is mentioned by the Imaam Abu Shaamah (d.665H).
He was followed in this by the likes of Abul-Khattaab 'Umar ibn Dihyaa: "who was employed in the west, then travelled to Syria, then he travelled to the city of Irbil in 'Iraaq, during the fourth century, where he found its king Mudhaffar Ad-Deen ibn Zayn Ad-Deen showing a keen interest in the Milaad (birthday) of the Prophet . So he composed a book for him called at-Tanweer fi Mawlidis-Siraajil-Muneer; so he recited this to the king who then rewarded him with one thousand deenaars."
Imaam Maalik (d.179H) – - said: 'Whosoever introduces into Islam an innovation, and holds it to be something good, has indeed alleged that Muhammad has betrayed his message. Read the saying of Allah - the Most Blessed, the Most High (which means): "…This day I have perfected for you your religion and completed My favor upon you and have approved for you Islam as religion…" [Quran 5:3] So that which was not part of the religion at that time, cannot be part of the religion today. And the last part of this Ummah cannot be rectified, except by that which rectified its first part."
Thus, had the practice of celebrating the birthday of the Prophet been something praiseworthy then, the Salaf (the Pious Predecessors) - may Allah be pleased with them all - would have instituted it. For they were the ones having a greater love and honor for Allah's Messenger and a greater zeal for doing good.
Indeed, the most perfect expression of love and honor for him is by following him, obeying him, carrying out his commands, upholding and reviving his Sunnah (guidance and example) - both inwardly and outwardly - and in spreading his message and striving in this, with the heart, the hand and the tongue. Such was the path of the Companions and those who followed them in goodness (i.e. beliefs and actions)."