Old English godspel "glad tidings announced by Jesus; one of the four gospels," literally "good spell," from god "good" (see good (adj.)) + spel "story, message" (see spell (n.1)). A translation of Latin bona adnuntiatio, itself a translation of Greek euangelion "reward for bringing good news" (see evangel). The first element of the Old English word originally had a long "o," but it shifted under mistaken association with God, as if "God-story" (i.e. the history of Christ).
The mistake was very natural, as the resulting sense was much more obviously appropriate than that of 'good tidings' for a word which was chiefly known as the name of a sacred book or of a portion of the liturgy. [OED]
The word passed early from English to continental Germanic languages in forms that clearly indicate the first element had shifted to "God," such as Old Saxon godspell, Old High German gotspell, Old Norse goðspiall. Used of anything as true as the Gospel from mid-13c.; as "any doctrine maintained as of exclusive importance" from 1650s. As an adjective from 1640s. Gospel music is by 1955. Gospel-gossip was Addison's word ("Spectator," 1711) for "one who is always talking of sermons, texts, etc."