This tradition has been around for thousands of years. It all began with the ancient Celts of Ireland. They are the ones who are credited with both the creation of “Halloween” and also to the added insight of dressing up in costumes on this day.
These Celtic people were very conscious of the spiritual world and they had their own ideas about how they could gain access to it. They celebrated a feast/festival known as Samhain (pronounced Sah-ween), which occurred at the end of the summer (Nov. 1) and marked their New Year. They believed that during this night the normal world and the spirit world were narrowly separated and they thought that supernatural forces/ghosts/spirits were active and free to wonder as they wished.
During Samhain it was believed that the spirits of the dead would rise from their graves and wander the countryside and attempt to return to their former worldly homes. It was also feared that if these dead loved ones could return on this night than so could any other type of spirit, nice or not. And this is where the dressing up tradition begins as this extremely superstitious Celtic people’s only thought as to how to protect themselves was to disguise themselves as a demonic hoard, hopefully blending in unnoticed. So the Celts would wear masks and other disguises, including blackening their faces. This is where the origin of masquerading on Halloween as ghosts, goblins, devils, etc on Halloween comes from.
After the 1840’s potato famine in Ireland millions of Irish emigrants arrived on the shores of the United States and so did the Halloween holiday and all of its traditions, including dressing up.