Seed, Click here for another interesting lesson in Irish History, and click here for information about the Penal Laws. I did a fair amount of research, and can't find any mention of a law forbidding the wearing of the color green. I would guess that the "law" is actually various anti-republican provisions of the Penal Laws enacted in the 18th century, and the Act of Union of 1801, and that "wearing the green" is a metaphor for republican activity (or possibly just being Catholic).
One source I have says that some writers have claimed the song was published in 1798, but the earliest provable reference to the song was 1838. The first known printing of the melody of the song was 1845. During the Fenian period in the middle of the nineteenth century, it was said that it was a crime in Great Britain to sing or whistle The Wearin' o' the Green - but no such penal law has been found.

source: The Book of World-Famous Music - James J. Fuld, 1966.

-Joe Offer-