This word, says Defoe, is the Irish toruigh, used in the reig of Queen Elizabeth to signify a band of Catholic outlaws who haunted the bogs of Ireland. It is formed from the verb toruighim (to make sudden raids). Golius says- “TORY, silvestris, montana, avis, homo, et utrumque ullus haud ibi est ” (Whatever inhabits mountains and forests is a Tory). Lord Macaulay says - “The name was first given to those who refused to concur in excluding James from the throne.” He further says- “The bogs of Ireland afforded a refuge to Popish outlaws, called tories. ” Tory-hunting was a pastime which has even found place in our nursery rhymes- “I went to the wood and I killed a tory”
F. Crossley gives as the derivation, Taobh-righ (Celtic), “king's party.” H.T. Hore, in Notes and Queries, gives Tuath-righ, “partisans of the king.” G. Borrow gives Tar-a-ri, “Come, O king.”
In 1832, after the Reform Act, the Tory party began to call themselves “Conservatives,” and after Gladstone's Bill of Home Rule for Ireland, in 1886, the Whigs and Radicals who objected to the bill joined the Conservatives, and the two combined called themselves “Unionists.” In 1895 the Queen sent for Lord Salisbury, who formed a Unionist government.
Source: Dictionary of Phrase and Fable, E. Cobham Brewer, 1894
More on Tory from Infoplease: