Unknown. However it seems that it’s been around in one form or another since the about the 1930’s. In those days it was something of a regional specialty, being closely tied to the State of Texas, especially the City of Austin and most especially the Adams Extract Company. Adams manufactured food colorings, and one of the company’s favorite promotion techniques was to give away copies of recipes that used colors — lots and lots of colors. They spread around quite a few copies of their red velvet cake over time.
By the 50’s and early 60’s red velvet cake had burst its regional boundaries and had spread all over the West, Northwest and Midwest. By that point it just may have reached the East, especially the City of New York and most especially the Waldorf Astoria Hotel, but that’s a subject for another post.
Red velvet cake is and always was a novelty. Odds are it was originally created for the holiday season, a bright red buttermilk cake that was meant to look Christmas-y. Its popularity peaked in the 60’s, when other-worldy looking foods were all the rage in the States and housewives delighted in bright molded fruit salads, cube-shaped savory aspics and spherical potted meat dumplings.
Red velvet all but went the way of ketchup-pistachio cake (I know, but it actually existed) before it regained prominence in the 1989 film Steel Magnolias. It was “a thing”, as the kids like to say, all through the 90’s, until it’s popularity seemed to explode about five years ago. Since then red velvet has been pervasive, and so has the rumor that there was once a version that didn’t use red food coloring. Alas red velvet and two ounces of red coloring go hand-in-hand. Such is life in America, where we like to play with our food almost as much as we like to eat it.