Believe it or not, pictures and carvings of Medusa's severed head were incredibly popular throughout the ancient world. The image of Medusa's snake-haired, sneering face was called the Gorgoneion, and it was plastered all over the place. The actual head of Medusa was even said to be on the shield of Athena.
In general, the Gorgoneion was a symbol of warning. It was emblazoned on warriors' shields to intimidate the enemy, and it was often carved into doors to scare potential intruders. The Gorgoneion was also chiseled into the face of many buildings and may have been a pre-cursor to the ugly stone critters we know as gargoyles. Many ancient coins were also imprinted with the face of Medusa.
Some have theorized that the image of the Gorgoneion pre-dated even the story of Perseus. It's possible that the image of Medusa's severed head became so popular that, one day, someone decided to make up a story as to how the head got separated from the body. The Gorgoneion continues to be used in modern times, most prominently as the symbol of Gianni Versace's fashion company.