Two accounts in the New Testament describe Jesus as born in Bethlehem. According to the Gospel of Luke, Jesus' parents lived in Nazareth but traveled to Bethlehem for the census of AD 6, and Jesus was born there before the family returned to Nazareth.

The Gospel of Matthew account implies that the family already lived in Bethlehem when Jesus was born, and later moved to Nazareth. Matthew reports that Herod the Great, told that a 'King of the Jews' has been born in Bethlehem, ordered the killing of all the children aged two and under in the town and surrounding areas. Jesus' father Joseph is warned of this in a dream, and the family escapes this fate by fleeing to Egypt and returning only after Herod has died. But being warned in another dream not to return to Judea, Joseph withdraws the family to Galilee, and goes to live in Nazareth.

Early Christians interpreted a verse in the Book of Micah as a prophecy of the birth of the Messiah in Bethlehem.  Many modern scholars question whether Jesus was really born in Bethlehem, and suggest that the different Gospel accounts were invented to present the birth of Jesus as fulfillment of prophecy and imply a connection to the lineage of King David. The Gospel of Mark and the Gospel of John do not include a nativity narrative or any hint that Jesus was born in Bethlehem, and refer to him only as being from Nazareth.  In a 2005 article in Archaeology magazine, archaeologist Aviram Oshri pointed to the absence of evidence of settlement of the area at the time when Jesus was born, and postulates that Jesus was born in Bethlehem of Galilee. Opposing him, Jerome Murphy-O’Connor argues for the traditional position.

The existence of early traditions of Jesus' birth in Bethlehem is attested by the Christian apologist Justin Martyr, who stated in his Dialogue with Trypho (c. 155–161) that the Holy Family had taken refuge in a cave outside of the town.  Origen of Alexandria, writing around the year 247, referred to a cave in the town of Bethlehem which local people believed was the birthplace of Jesus.  This cave was possibly one which had previously been a site of the cult of Tammuz.

 Source: http://en.wikipedia.org/wiki/Bethlehem