The incident occurred last Friday when a dozen students showed up wearing the shirts at a secondary school in Gossau, the SonntagsBlick newspaper reported.
The teacher banned three of them from returning to her class in the afternoon because of her concerns the students were making a racist statement about Swiss citizens, the newspaper said.
The school's administration quickly distanced itself from the decision but it kicked off a media storm of commentary and nationwide political reaction.
Later, the teacher recognized that she had over-reacted.
“This shirt does not violate the dress code of our establishment and is not banned,” school principal Patrick Perenzin said, according to a report from Le Matin.
The students themselves said they wanted to show that they were patriotic and proud of being Swiss, according to reports.
“You can wear an Islamic veil but receive a warning for an edelweiss shirt, it's incomprehensible,” one of them reportedly said.
However, Le Matin said they also wanted to show their difference from foreign students, particularly those originally from the Balkans, and tensions between the groups flared up regularly.
The president of the Zurich teachers' federation, Lilo Lätzsch, regretted the teacher's decision.
If there are problems with racism in a school you do not resolve them by banning a shirt, she told the Tages Anzeiger daily.
But the clothing item quickly became a political football to be kicked around with some arguing that what started off a symbol of farmer pride has taken on a xenophobic connotation.
On Wednesday, most of the MPs in the Valais cantonal parliament from the nationalist Swiss People's Party (SVP) showed up wearing the edelweiss shirt, in support of the students.
At the same time, SVP said it was using the shirt as a symbol of the “love of our country as well as the respect for the values of our ancestors, respect for the values of the land upon which modern Switzerland is born.”
Le Temps newspaper reported the party was defending the shirt while also collecting signatures for an initiative to ban wearing veils in schools.
Meanwhile, Therese Jenni, whose family business in the canton of Bern produces edelweiss shirts, deplored the debate that has arisen.
“It's a shirt of folklore, it's a shame to politicize it,” Jennis told Le Temps.
Her company started selling the garment in 1979 from their store in Ballenberg to meet the demand from customers nostalgic for a traditional look, the newspaper said.
It now annually sells 20,000 of the shirts made from Austrian fabric, although it no longer has a monopoly and other companies make similar ones.
The popularity of the design took off in 2006 when the Swiss Farmers Union (SBV) launched a marketing campaign showing personalities such as tennis player Patty Schnyder and F1 motor racing champion Michael Schumacher modelling them.