The year is 1223. Saint Francis is a deacon visiting the town of Greccio to celebrate Christmas. A small town on a mountainside with lots of vineyards, Greccio had a chapel at the Franciscan hermitage that was too small for the congregation at Midnight Mass. Francis found a niche (small cave) near the town square and set up the altar.
The only historical account we have of the nativity scene that Francis set up comes from The Life of St. Francis of Assisi by St. Bonaventure. 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 the niche.
The villagers were invited to see the live nativity (AKA Presepe or creche) while he preached.
Some of the account may be apocryphal. Francis was supposedly so overcome by emotion that he couldn’t say “Jesus.” and instead said “the babe of Bethlehem.” Bonaventure also claims that the hay used by Francis in the scene miraculously acquired the power to cure local cattle diseases and pestilences.
The Mass was in Latin, which only the clergy understood, so during the Middle Ages, “Mystery” and “Miracle” plays were created as ways to teach Scripture to laypeople. They were popular and educational, and Francis used the concept for the midnight mass.
His living Nativity was a hit with the villagers and in the century to follow every church was expected to have some sort of Nativity scene at Christmastime.