We searched on "origin Dixie" and learned that neither Southerners nor Yankees have a clear idea how the term originated. However, we did uncover a few theories and an explanation of the word's popularity.
Evan Morris, aka the Word Detective, examines the possible origins of "Dixie" in detail. He offers a theory about a Manhattan slave owner named Johan Dixie or Dixy. When slavery was abolished in the North, he sent his slaves to the South. His slaves remembered Dixie's land as a place of better treatment. Other theories suggest that Dixie was simply a kindly slave owner, and word got around among slaves that Dixie's land was idyllic.
UrbanLegends.com looks to the book A Dictionary of Americanisms on Historical Principles for possible origins for the term. In addition to the slave owner theory, this site explains that ten-dollar notes issued by the Citizens Bank of Louisiana before the Civil War were known as "dixes" or "dixies." The currency was printed in both English and French, and the French word for ten is "dix," so Louisiana may have been referred to as Dixie land. Later, the name spread to include the entire South.
The third popular theory is that the South got the title "Dixie" from the Mason-Dixon line. This is the border between Pennsylvania and Maryland, and it's named after the two British men, Charles Mason and Jeremiah Dixon, who surveyed the area in 1763. The Missouri Compromise of 1820 made this line the boundary between free states and slave states, and it's still considered the dividing line between North and South.
http://ask.yahoo.com/ask/20021001.html