According to Smithsonian.org:
Blame St. Francis of Assisi, who is credited with staging the first nativity scene in 1223. The only historical account we have of Francis’ nativity scene comes from The Life of St. Francis of Assisi by St. Bonaventure, a Franciscan monk who was born five years before Francis’ death.
According to Bonaventure’s biography, St. Francis got permission from Pope Honorious III to set up a manger with hay and two live animals—an ox and an ass—in a cave in the Italian village of Grecio. He then invited the villagers to come gaze upon the scene while he preached about “the babe of Bethlehem.” (Francis was supposedly so overcome by emotion that he couldn’t say “Jesus.”) Bonaventure also claims that the hay used by Francis miraculously acquired the power to cure local cattle diseases and pestilences.