In Romeo and Juliet, why is Romeo banished?

Romeo is banished because he killed Tybalt in a fight between those loyal to the Montagues and those loyal to the Capulets. Romeo has no intention of committing this act, but tempers between the two groups flare, violence erupts, and Romeo takes revenge on Tybalt for killing Mercutio. When the prince learns of this, he banishes Romeo from Verona on penalty of death.

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Romeo is banished from Verona for killing Tybalt, Juliet's aggressive cousin who is responsible for Mercutio's death. Shortly after Tybalt kills Romeo's close friend Mercutio, Romeo seeks revenge by slaying Tybalt in the streets, which is a turning point in the play. Following Tybalt's death, Romeo flees and Prince Escalus arrives on the scene, demanding to know the source of the confrontation. Benvolio, Romeo's cousin, recounts the events by explaining how Tybalt started the fight and Romeo sought revenge.

Following Benvolio's account, Lady Capulet argues for Romeo's death and Lord Montague states that his son was carrying out the law by taking Tybalt's life. Lord Montague reasons that Tybalt would have inevitably died for his crime and that Romeo was simply taking matters into his own hands. After careful examination, Prince Escalus decides to spare Romeo's life and banishes him from Verona. Given Prince Escalus's relation to Mercutio, it is likely he sides with Lord Montague because Tybalt killed his relative.

Once Romeo learns that he has been exiled from Verona, he breaks down in tears and contemplates suicide. Friar Laurence rebukes Romeo for his immature response and urges him to be grateful for the prince's merciful ruling. Despite Friar Laurence's rational argument, Romeo says he would rather die than be apart from Juliet. Romeo's banishment is significant, because Friar Laurence is forced to concoct a flawed scheme to reunite the star-crossed lovers.

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After Friar Laurence secretly marries Romeo and Juliet in the sincere but mistaken hope that their union will end the feud between the Montagues and the Capulets, Romeo and his friends run into a group of Capulets and their friends. Among the group is Juliet’s cousin Tybalt. The people loyal to the Capulets clash with the others, who are loyal to the Montagues and to Romeo.

Romeo does not want to participate in a fight with his wife’s relatives. Nevertheless, because tensions run high and tempers prevail over rationale behavior, other members of each group begin to fight. Unfortunately, Tybalt kills Romeo’s good friend Mercutio. In response to his friend’s needless death, Romeo turns and attacks and kills Tybalt.

Juliet’s nurse reports this news to Juliet, telling her,

Tybalt is gone and Romeo banishèd.

Romeo that killed him—he is banishèd.

Once the prince learns that Romeo slayed Tybalt, he banishes Romeo from Verona, saying,

And for that offense

Immediately we do exile him hence.

The prince adds that all the Montagues and Capulets will “repent” of the death of Tybalt. In fact, the killing of Tybalt is a pivotal point in the play that underscores the futility and stupidity of the feud between the houses of Montague and Capulet. Such a feud can only result in bloodshed, with nothing good coming out of it. By losing their young and vibrant members, the two families learn the hard way that they must put such rancor aside and try to live in peace.

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Short Answer: Romeo is banished from Verona because...

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he participates in an altercation involving his family's feud with the Capulets and ends up killing Juliet's cousin, Tybalt.

In act 3, scene 1, Tybalt approaches Romeo and calls him a villain before challenging him to a duel. When Romeo refuses to fight Tybalt, Mercutio defends Romeo by calling Tybalt the "King of Cats" and drawing his sword. While Mercutio and Tybalt are fighting, Romeo intervenes by getting in between the two men, which allows Tybalt to fatally stab Mercutio underneath Romeo's arm. After discovering that Tybalt has killed Mercutio, Romeo seeks revenge and challenges Tybalt to a duel. Romeo ends up killing Tybalt and flees before Prince Escalus arrives at the scene. When Prince Escalus learns about Mercutio and Tybalt's deaths, he banishes Romeo from Verona by saying,

And for that offence Immediately we do exile him [Romeo] hence (Shakespeare, 3.1.148-149).

Instead of being punished by death, Romeo is exiled from the city he grew up in and is forced to flee to Mantua—before he secretly returns to Verona and discovers that Juliet is presumably dead.

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Romeo is banished in Shakespeare's Romeo and Juliet after killing Tybalt in a street duel. In spite of the fact that Tybalt started this duel and killed Mercutio, one of Romeo's dearest friends, in the process, Romeo is the "last man standing" and must bear the responsibility and consequences for the bloodshed. 

At the beginning of the Play, Prince Escalus finds the Capulets and Montagues brawling in the streets and, thus, declares that there will be severe punishment if they are caught fighting again:

By thee, old Capulet, and Montague.

Have thrice disturb'd the quiet of our streets,

And made Verona's ancient citizens

Cast by their grave beseeming ornaments,

To wield old partisans, in hands as old,

Canker'd with peace, to part you canker'd hate:

If ever you disturb our streets again,

Your lives shall pay the forfeit of the peace.

Thus, when the Prince discovers that violence has once again broken out between the Capulets and Montagues in Act Three, the punishment he hands down to Romeo is actually relatively gentle. Rather than make Romeo pay with his life (as he had previously threatened), the Prince merely exiles Romeo from Verona. This is especially compassionate given the fact that the Prince has lost a relative in the duel, as Mercutio was related to him. 

Alas, for impulsive, stubborn Romeo, this punishment--which will result in him being separated from his new wife--is just as unbearable as death. 

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Why does the Prince banish Romeo from Verona?  

The Prince banishes Romeo from Verona in Act 3, Scene 1.  That scene begins with Benvolio and Mercutio bantering with each other.  Tybalt eventually arrives and antagonizes the two other men because they are friends with Romeo.  

Mercutio, thou consort’st with Romeo.

The men exchange some insults with each other, and then Romeo arrives.  Tybalt is geared up for a fight, and he challenges Romeo to a duel.  

Romeo, the love I bear thee can afford
No better term than this: thou art a villain. . . .
Boy, this shall not excuse the injuries
That thou hast done me. Therefore turn and draw.
Romeo wants nothing to do with the duel.  He is now related to Tybalt through marriage, and he wants to show love to the Capulet family as well as Juliet.  
I do protest I never injured thee,
But love thee better than thou canst devise,
Till thou shalt know the reason of my love.
And so, good Capulet—which name I tender
As dearly as my own—be satisfied.
Mercutio is appalled at Romeo's behavior, so Mercutio takes up Tybalt's challenge.  By this point, Tybalt doesn't really care who he fights, so he agrees to fight Mercutio.  Romeo attempts to stop the fight by reminding the men that the Prince has forbidden any sort of fighting in the streets.  
Gentlemen, for shame! Forbear this outrage.
Tybalt, Mercutio! The Prince expressly hath
Forbidden bandying in Verona streets.
Hold, Tybalt! Good Mercutio!
Romeo's cries go unheard and Tybalt mortally wounds Mercutio.  Romeo is completely distraught and chastises himself for not fighting Tybalt.  
O sweet Juliet,
Thy beauty hath made me effeminate
And in my temper softened valor’s steel!
Tybalt comes back on the scene, and Romeo's rage causes him to begin a fight to the death against Tybalt.  
Now, Tybalt, take the “villain” back again
That late thou gavest me, for Mercutio’s soul
Is but a little way above our heads,
Staying for thine to keep him company.
Either thou or I, or both, must go with him.
The two men fight, and Romeo winds up killing Tybalt.  Benvolio immediately grasps the gravity of the situation, and he tells Romeo to run away.  Benvolio fears that the Prince will give Romeo the death sentence. 
The Prince will doom thee death
If thou art taken. Hence, be gone, away!
Romeo runs away, and the Prince shows up soon after.  The Prince demands that Benvolio explain what happened.  Benvolio explains everything, and he makes it clear that Tybalt started the fight.  Benvolio also makes it clear that Romeo didn't enter any fighting until after Tybalt killed Mercutio.  Lady Capulet demands that Romeo be killed for killing Tybalt, but the Prince and Montague point out that since Tybalt killed Mercutio, Romeo essentially did the law's job by killing Tybalt.  
PRINCE
Romeo slew him, he slew Mercutio;Who now the price of his dear blood doth owe?
MONTAGUE
Not Romeo, prince, he was Mercutio's friend;His fault concludes but what the law should end,The life of Tybalt.
That's good for Romeo because it means the death penalty won't be leveled against him; however, the Prince can't let the street fight and killings go unpunished.  The Prince decides to banish Romeo from Verona.  
And for that offence
Immediately we do exile him hence.
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Why does the Prince banish Romeo from Verona?  

The Prince banishes Romeo from Verona for killing Tybalt in a duel in the streets. Although he has announced that he will execute anyone from the Montague or Capulet families who sheds blood in the streets, he decides to only banish Romeo because Tybalt had killed Mercutio. As the Montagues point out, Romeo had thus basically done what the law would have otherwise done in killing Tybalt. Additionally, Romeo had attempted to avoid Tybalt's challenge, and fought Tybalt (who was by that point Romeo's kinsman by virtue of his marriage to Juliet) only when Mercurio had been slain. Romeo is nevertheless devastated by the news, as he has just married Juliet and views banishment as a disaster. Although the Friar is very persuasive in telling Romeo that he should be grateful to only receive banishment, Romeo is, in a way, proven correct. His banishment to Mantua leads inexorably to a series of misfortunes that culminate in his and Juliet's deaths. 

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