The answer lies in the pagan origins of Christmas. The day was chosen to correspond to pagan festivals that took place around the time of the winter solstice to celebrate the rebirth of the sun as the days begin to lengthen. That time was being celebrated by the ancients long before Christ was born.

In order to more easily convert Pagans toward celebrating Christian holidays the early Christian fathers overlaid Christian holy days and feast days on older pagan days of celebration in the hopes of eventually erasing the pagan festivals from memory. By doing this converts could continue to have a traditional midwinter celebration even if they had to celebrate in the "new" Christian church. By moving the birth of Christ to the time of the Winter Solstice they hoped to overshadow the most important celebration of the ancients- the return of the sun. December 25th was chosen as Christ's birthday celebration to make the transition from Paganism to Christianity easier.

In ancient Babylon, the feast of the Son of Isis (Goddess of Nature) was celebrated around December 25. Raucous partying, gluttonous eating and drinking and gift-giving were traditions of this feast.

The Roman Saturnalia (a festival dedicated to Saturn, the god of agriculture, and to the renewed power of the sun), also took place at this time. In January, they observed the Kalends of January, which represented the triumph of life over death. This whole season was called Dies Natalis Invicti Solis, the Birthday of the Unconquered Sun. The festival season was marked by much merrymaking. It is in ancient Rome that the tradition of the Mummers was born. The Mummers were groups of costumed singers and dancers who traveled from house to house entertaining their neighbors. From this, the Christmas tradition of caroling was born. 

In northern Europe, many other traditions that we now consider part of Christian worship were begun long before the participants had ever heard of Christ. The pagans of northern Europe celebrated their own winter solstice tradition known as Yule. Yule was symbolic of the birth of the pagan Sun God, Mithras, and was observed on the shortest day of the year. As the Sun God grew and matured, the days became longer and warmer. It was customary to light a candle to encourage Mithras, and the sun, to reappear next year.  The word Yule itself means "wheel," the wheel being a pagan symbol for the sun. The modern traditions of the most important Christian holiday- Christmas- is rooted in these ancient pagan traditions.

 Huge Yule logs were burned in honor of the sun.
Mistletoe was considered a sacred plant, and the custom of kissing under the mistletoe began as a fertility ritual.
Hollyberries were thought to be a food of the gods.
 The tree is the one symbol that unites almost all the northern European winter solstices. Live evergreen trees were often brought into homes during the harsh winters as a reminder to inhabitants that soon their crops would grow again.
Evergreen boughs were sometimes carried as totems of good luck and were often present at weddings, representing fertility.
The Druids used the tree as a religious symbol, holding their sacred ceremonies while surrounding and worshipping huge trees.

Some Religious History From Contributors:

According to the New Catholic EncyclopediaThe date of Christ's birth is not known although scholars agree that Jesus was actually born in late spring or early summer, sometime around May or June. The early church fathers estimated several different dates for the birth of Christ. According to the account in the book of Luke, when Jesus was born, there were shepherds living out doors at night with their flocks (Luke 2:8). In the cold winter month of December, shepherds seek shelter for themselves and their flocks at night. From this fact alone it may be seen that the traditional date for Christmas, in the winter, is unlikely to be right, since the Gospel says that the shepherds were in the fields.

Also, the Bible indicates that his cousin John was six months older than Jesus. John was born close to the Jewish holiday of Passover, which occurred on the Jewish calendar day of Nisan the 14th, which corresponds to roughly the end of March to the beginning part of April. That places Jesus birth possibly around the end of September to the early part of October.

Around 200AD Tertullian of Carthage reported the calculation that the 14th of Nisan (the day of the crucifixion according to the Gospel of John) in the year Jesus died was equivalent to March 25th in the Roman (solar) calendar. March 25th is nine months before December 25th. Jesus was believed to have been conceived and crucified on the same day of the yearand therefore born on December 25. This became the standard view in the western church by the 4th century. This theological calculation was used as justification for setting the time of Christ's birth at the time of the pagan year end and year beginning celebrations.

For the church's first three centuries, Christmas wasn't in December nor on the calendar at all. In reaction to the claims by Gnostics that Jesus had not been mortal, and to "humanize" Christ, Christians began to emphasize the Nativity. As this reworking continued many third century Christians supported observance of Christ's birthday, but condemned customs such as exchanging of gifts and decorating homes with evergreens citing Book of Jeremiah:10 which condemns the heathen practice of cutting a tree from the forest to "deck it with silver and gold".

Western Christians first celebrated Christmas on December 25 in 336, after the Roman Emperor Constantine, who ruled from 306 to 337CE, had declared Christianity the empire's favored religion. This date was probably chosen because the Winter Solstice and the ancient pagan Roman midwinter festivals called 'Saturnalia' and 'Dies Natalis Solis Invicti' took place in December. He first bought the Roman pagan 'sun-day' (the first day of the week) and the 'sabbath' (the Christians holy day) together to what we now call Sunday. In 350, Pope Julius I declared that Christ's birth would be celebrated on December 25. There is little doubt that he was trying to make it as painless as possible for pagan Romans (who remained a majority at that time) to convert to Christianity. The new religion went down a bit easier, knowing that their feasts would not be taken away from them for the cult of the sun was particularly strong at Rome.

Eastern churches, however, held on to January 6 as the date for Christ's birth and his baptism. Most easterners eventually adopted December 25, celebrating Christ's birth on the earlier date and his baptism on the latter, but the Armenian church celebrates his birth on January 6. Incidentally, the Western church does celebrate Epiphany on January 6, but as the arrival date of the Magi rather than as the date of Christ's baptism.

St Augustine introduced Christmas to Britain by introducing Christianity in the 6th century. He came from countries that used the Roman Calendar, so western countries celebrate Christmas on the 25th day of December.

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