The word was used in Spain long before it crossed the Atlantic to denote foreign, non-native speakers of Spanish. Although it has various anecdotal etymologies, and various connotative or interpretive meanings, its ultimate source appears to be "griego", the Spanish word for "a Greek person" that serves, in some countries, as a colloquial shorthand for any foreign (non-Spanish) person (q.v.).

The word is first attested in Terreros y Pando's Diccionario castellano con las voces de Ciencias y Artes y sus correspondientes en las 3 lenguas francesa, latina e italiana in 1786, which says:

gringos llaman en Málaga a los extranjeros que tienen cierta especie de acento, que los priva de una locución fácil y natural Castellana; y en Madrid dan el mismo nombre con particularidad a los irlandeses'gringos' is what they call foreigners who have a certain kind of accent which prevents them from speaking easy and natural Castillian; and in Madrid they give the same name in particular to the Irish

Most scholars agree that gringo is a variant of griego 'Greek' (cf. Greek to me); but it has also been argued that griego > gringo is phonetically unlikely (it requires two separate steps, griego > grigo, and after, grigo > gringo), and that it may instead come from the language of the Spanish Romani, Caló, as a variant of (pere)gringo 'wayfarer, stranger'.

Its entry in a 1817 French-Spanish dictionary, written by Antonio de Capmany, includes:

Gringo, griego: aplícase a lo que se dice o escribe sin entenderse.Gringo, Greek : applies to what is said or written without understanding it.

Johann Jakob von Tschudi observed that the term "gringo" was used in Lima, Peru in the 1840s:

"Gringo" has been in use in the English language since the 19th century. According to the Oxford English Dictionary, the first recorded use of the term in an English source is in John W. Audubon's Western Journal of 1849; Audubon recalls that he and his associates were derided and called "Gringoes" while passing through the town of Cerro Gordo, Veracruz.

A common folk etymology makes gringo come from a song sung around their campfires by invading Yankees, not just Anglo but Irish and German. When the Mexican-American War began in 1846, from a few to several hundred recently immigrated Irish, German, and other Catholic Americans who were sent by the U.S. government to fight against Mexico came to question why they were fighting against a Catholic country for a Protestant one, combined with resentment over mistreatment by their haughty Anglo-Protestant officers, and deserted to join forces with Mexico. Led by Captain Jon Riley of County Galway, they called themselves St. Patrick's Battalion (in Spanish, Batallón de San Patricio). Green was the color of the Irish, who also first used the Gaelic slogan Erin go Bragh ("Ireland forever"), but more importantly the soldiers frequently sang "Green Grow the Rushes Oh!", based on a Robert Burns poem, or an earlier Scottish tune "Green Grows the Laurel", which they called "Green Grow the Lilacs", which traces back to a song composed in the early 16th century by English king Henry VIII called "Green Grows the Holly". Mexican soldiers are said to make out the repeated refrain "Green Grow", reporting back that that might be what they called themselves.

Some see support for this theory from the fact that it seems to not have been explicitly documented first by Mexicans, but by Anglos who heard it used against them by Mexicans as a racial epithet during the 1846-8 war (see above). This suggest that it was the 1846-48 war (where the word gringo took on a life of its own) that is peculiar to the U.S.-Mexican experience.