Praise be to Allah, the Lord of the Worlds, and blessings and peace be upon our Prophet Muhammad and all his family and companions.
The commands mentioned in the Qur'an and sunnah to follow the laws of Allah and His Messenger, and the prohibitions on introducing innovations into the religion are quite clear. Allah says (interpretation of the meaning):
"Say (O Muhammad to mankind): 'If you (really) love Allah, then follow me (i.e. accept Islamic Monotheism, follow the Qur'an and the sunnah), Allah will love you and forgive you your sins'." [Al-Qur'an 3:31]
"Follow what has been sent down unto you from your Lord (theQur'an and Prophet Muhammad's sunnah), and follow not anyawliya' (protectors and helpers who order you to associate partners in worship with Allah), besides Him (Allah). Little do you remember!" [Al-Qur'an 7:3]
"And verily, this is My straight path, so follow it, and follow not (other) paths, for they will separate you away from His path." [Al-Qur'an 6:153]
And the Prophet, peace and blessings of Allah be upon him, said, "The most truthful of speech is the Book of Allah and the best of guidance is the guidance of Muhammad, and the most evil of things are those which are newly-invented." And he, peace and blessings of Allah be upon him, said,"Whoever innovates anything in this matter of ours (i.e., Islam), that is not part of it will have it rejected." [Narrated by al-Bukhari, no. 2697; Muslim, no. 1718]. According to a version narrated by Muslim, "Whoever doe anything that is not in accordance with this matter of ours (i.e., Islam), will have it rejected."
Among the reprehensible innovations that people have invented is the celebration of the birthday of the Prophet, peace and blessings of Allah be upon him, in the month of Rabi' al-Awwal. They celebrate this occasion in various ways:
Some of them simply make it an occasion to gather and read the story of the Mawlid, then they present speeches and qasidah (odes) for this occasion;
Some of them make food and sweets etc., and offer them to the people present;
Some of them hold these celebrations in the mosques, and some of them hold them in their houses; and
Some people do not limit themselves to the actions mentioned above; they include in these gatherings haram and reprehensible things, such as free mixing of men and women, dancing and singing, or committing actions of shirk such as seeking the help of the Prophet, peace and blessings of Allah be upon him, calling upon him, seeking his support against their enemies and so on.
Whatever form it takes and whatever the intentions of those who do this are, there is no doubt whatsoever that it is an invented, haram innovation which was introduced after the three best centuries in order to corrupt the religion of the Muslims. The first person to do this after them was the King al-Muzaffar Abu Sa'id Kawkaburi, the King of Irbil, at the end of the sixth century or the beginning of the seventh century after hijrah, as was mentioned by the historians such as Ibn Khalikan and others. Abu Shamah said, "The first person to do that in Mosul was Shaykh 'Umar ibn Muhammad al-Mala, one of the well-known righteous people. Then the ruler of Irbil and others followed his example."
Al-Hafidh ibn Kathir said in al-Bidayah wa an-Nihayah (13/137), in his biography of Abu Sa'id Kawkaburi, "He used to observe the mawlid in Rabi' al-Awwal and hold a huge celebration on that occasion … some of those who were present at the feast of al-Muzaffar on some occasions of themawlid said that he used to offer in the feast five thousand grilled heads of sheep, ten thousand chickens and one hundred thousand large dishes, and thirty trays of sweets … he would let the Sufis sing from dhuhr untilfajr, and he himself would dance with them."
Ibn Khalikan said in Wafiyat al-A'yan (3/274), "When it is the first of Safar they decorate those domes with various kinds of fancy adornments, and in every dome there sits a group of singers and a group of puppeteers and players of musical instruments, and they do not leave any one of those domes without setting up a group (of performers) there. The people give up work during this period, and they do no work except going around and watching the entertainment. When there are two days to go until themawlid, they bring out a large number of camels, cows and sheep, more than can be described, and they accompany them with all the drums, songs and musical instruments that they have, until they bring them to the square… On the night of the mawlid there are performances of nasheeds after maghrib in the citadel."
This is the origin of this celebration on the occasion of the Prophet's birthday. More recently idle entertainment, extravagance, and wasting of money and time have become associated with an innovation for which Allah has not sent down any authority.
What Muslims should do is to revive the Sunnah and put an end to bid'ah(innovation); they should not do any action until they know the ruling of Allah concerning it.
You may also want to read more about:
-Ruling on Celebrating the Prophet's Birthday
-Discussing the Specious Arguments of those who Celebrate the Mawlid:
Follow the next link: http://sunnahonline.com/library/fiqh-and-sunnah/97-ruling-on-celebrating-the-birthday-of-the-prophet