Old English dwellan "to lead into error, deceive, mislead," related to dwelian "to be led into error, go wrong in belief or judgment," from Proto-Germanic *dwaljana "to delay, hesitate," *dwelana "go astray" (source also of Old Norse dvelja "to retard, delay," Danish dvæle “to linger, dwell,” Swedish dväljas “to dwell, reside;” Middle Dutch dwellen "to stun, perplex;" Old High German twellen "to hinder, delay") from PIE *dhwel-, extended form of root *dheu- (1) "dust, cloud, vapor, smoke" (also forming words with the related notions of "defective perception or wits").
The apparent sense evolution in Middle English was through "to procrastinate, delay, be tardy in coming" (late 12c.), to "linger, remain, stay, sojourn," to "make a home, abide as a permanent resident" (mid-14c.). From late 14c. as "remain (in a certain condition or status)," as in phrase dwell upon "keep the attention fixed on." Related: Dwelled; dwelt (for which see went); dwells.
It had a noun form in Old English, gedweola "error, heresy, madness." Also compare Middle English dwale "deception, trickery," from Old English dwala or from a Scandinavian cognate (such as Danish dvale "trance, stupor, stupefaction"); dwale survived into late Middle English as "a sleeping potion, narcotic drink, deadly nightshade."