Paper below the chair rail, and paint for the top. You may be able to leave the white you have. I notice tiny white flowers in your paper. If you want a color, pick one of the lighter colors from your new wallpaper.

Haha I would do the opposite- wallpaper on top, darkest green from it for the wall below.

So glad you want to use William Morris paper. Your dining room in so gorgeous. Typically wallpaper is done above a chair rail, but your rail is so high, won't see very much of it in your space if you do it that way. But that might be fine. With the perfect paint color on the lower wall, the dash of paper at the top will be a gorgeous accent instead of the star of the show.

This pic can help you visualize. Pretty stunning cream color on the walls and looks great with wood work.

Tradd Street Renovation- William Morris Wallcovering with Custom Paneling Wainsc · More Info

Either way looks nice, but, I would prefer the paper to be the star, in a house of that age. Its a very pretty room.

I think in a historic context this room may have had two wallpapers in it (at least) with a wall fill paper like the pattern you have shown below the plate rail (this is a plate rail not a chair rail, at this height) and a frieze paper above the chair rail. Or even a frieze with a border or borders. (And it may also have had a plainer ceiling paper) They frequently sold things as roomsets of coordinating papers. Sometimes in these houses the ceiling paper would be faux gilded burlap textured paper.

For example, these period friezes are are about 20" high: I am not suggesting either of these specifically, just showing how it was done.

So I would probably use the paper you have Under the plate rail since it is an overall pattern and paint above the plate rail, and consider painting the ceiling the same color as above the plate rail.

@Kendrah’s idea will give the room more light. @palimpsest’s is more historically correct. I would do whichever is more cohesive with the way you’re decorating the rest of your home.

You cannot go wrong with Morris paper. Ever. Love the color and the pattern choice.