The term tooth fairy denotes a fairy believed by children to take away milk teeth and leave a small sum of money or a small gift under the child’s pillow.
The earliest instance that I have found is from the Practical Housekeeper’s Own Page, in The Chicago Sunday Tribune (Chicago, Illinois) of 27th September 1908:
Many a refractory child will allow a loose tooth to be removed if he knows about the tooth fairy. If he takes his little tooth and puts it under the pillow when he goes to bed the tooth fairy will come in the night and take it away, and in its place will leave some little gift. It is a nice plan for mothers to visit the 5 cent counter and lay in a supply of articles to be used on such occasions.
The following is from an account by Dr. Catherine Lindsay Wynekoop* of her childhood days, published on Wednesday 13th December 1933 by many newspapers—here, by the Beaumont Journal (Beaumont, Texas):
INVOKED TOOTH FAIRY
Another delight in our home was the Tooth Fairy. Whenever any of us lost a tooth, we carefully placed it in an envelope, together with a letter to the Tooth Fairy, telling what we desired in exchange for the tooth.
The letter was placed under the pillow at night and in the morning there would be the “reward” in place of the tooth. The day after a tooth had been lost, therefore, always was one of rejoicing.
Going through some of mother’s things the other day, I came upon a box containing small teeth and several crumpled notes addressed to “Mr. Tooth Fairy,” in large, childish handwriting.
(* Catherine was the daughter of Alice Lois Lindsay Wynekoop (1871-1955); the latter, a physician, professor, feminist, civic leader and educator in child hygiene, was convicted of the murder of her 22-year-old daughter-in-law, Rheta Gretchen Gardener Wynekoop, who died in November 1933.)