According to Cassidy, this phrase is Irish and derives from béas núíosach, which he says means ‘the new custom’. Let’s examine this claim.
According to Ó Dónaill, béas means ‘habit; moral habit; conduct, manners’. And núíosach means ‘new, unaccustomed, green, unseasoned, unlearned; strange, novel.’
Béas and núíosach are both real words. So why don’t I accept that this is a real phrase? The problem is that languages are governed by subtle constraints, far too subtle to be explained adequately in even the most detailed dictionary. Suppose I said that this book is stinking garbage. (Which it is!) You would understand what I meant immediately. But suppose I then went to the dictionary and found that high is another word for stinking and that refuse is another word for garbage, would you still understand if I said that the book was ‘high refuse?’ Probably not. In other words, to combine words in a language, you need to have some grasp of usage, otherwise you will end up with phrases which make no sense.
Neither of these words is particularly common, and there is a far more usual way of saying something new, the word nuacht (also sometimes nuaíocht). There is a common phrase in Irish, go maire tú do nuacht, which means something like ‘may you live out your new thing’. In English, Irish people frequently use the expression ‘health to enjoy’ in the same circumstances. For example, if someone has just bought a new house, or a new car, the person they are speaking to will say go maire tú do nuacht! So the nuacht (or nuaíocht, as I would say) is the house or car. It is the new thing in your life.
Cassidy did not understand Irish and béas núíosach is not a real phrase. Try thinking ‘novel conduct’ as a translation of the effect this phrase has on the ear of an Irish speaker. Can you imagine anyone saying ‘That car is the novel conduct?’ (!)
Look it up on Google and you will see that every reference to béas núíosach is to bee’s knees and to Cassidy’s theories. Then look up go maire tú do nuacht and you will see that it is a real phrase and that it is mentioned by lots of people on lots of sites.
Finally, the most likely origin of the phrase is that it is a jocular mispronunciation of business. Both ‘it’s the business’ and ‘it’s the bee’s knees’ can be used interchangeably to mean something very good.