In William Shakespeare's play "Macbeth" the line "eye of newt, and toe of frog" (Macbeth IV, i. 14-15) is recited by one of three witches who are putting mysterious ingredients into a boiling cauldron in an effort to conjure spirits who will help them manipulate the play's namesake, Macbeth.
Other ingredients being put into Shakespeare's cauldron are wool of bat, adder's fork, lizard's leg and a howlet's wing. However, like eye of newt, which is a type of salamander, none of these ingredients are believed to refer to actual animals.
It is believed that the women of Shakespeare's time who were known as witches were women with great knowledge of herbal healing and medicine—whether or not they used that knowledge for good was another issue. Eye of newt is thought to be a common name for a magical/medicinal herb, not the eye of a living newt.
Though there is no way to be absolutely certain, modern herbalists speculate that eye of newt referred to the seeds of the wild mustard plant, which could look like the small yellow eyes of the newt.
"Eye of newt" has been commercialized and propogated to represent the names of businesses, retail stores, and at least one musical group. The term is currently being used in a popular computer game to represent the power needed to create an attack potion.