One of the stories floating about is that "life of Riley" originated with the American soldiers (of Irish descent) during World War I. The story points out that the "first known citation is in a letter from a Private Walter J. Kennedy" published in the Syracuse Herald on June 29, 1918. The title of the piece was "Great Life, Writes Soldier at Camp".
This story we know to be false, because the phrase was in print prior to that time.
Another story predates the Private Walter J. Kennedy letter by more than 25 years. This explanation, which seems to be the prevailing theory, is that it sprang to life from an 1880s vaudeville song written by an Irish dancer/comic/singer named Patrick Rooney. He was part of a vaudeville family act — The Dancing Rooneys — consisting of Patrick Sr., Patrick Jr., and Patrick Rooney, III.
The song is about a guy who owned a saloon in a small Midwestern town and dreams of what his life would be like if he were to strike it rich in California.
Is that Mister Reilly who owns the hotel?
Well, if that's Mister Reilly they speak of so highly,
Upon my soul, Reilly, you're doing quite well.