While it also stands in its own right, it is often seen as a prelude to Tolkien's monumental fantasy novel The Lord of the Rings (published in 1954 and 1955).
The story, subtitled There and Back Again, follows the adventures of the hobbit Bilbo Baggins as he travels across the lands of Middle-earth with a band of dwarves and a wizard named Gandalf on a quest to restore a dwarven kingdom and a great treasure stolen by the dragon, Smaug.
The Novel Is Born...In a 1955 letter to W. H. Auden, Tolkien recollects in the late 1920s, when he was Professor of Anglo-Saxon at Pembroke College, he began The Hobbit when he was marking School Certificate papers. On the back of one of the papers, he wrote the words "In a hole in the ground, there lived a hobbit". He did not go any further than that at the time, although in the following years he drew up Thror's map, outlining the geography of the tale.
The tale itself he wrote in the early 1930s, and it was eventually published because he lent it to the Reverend Mother of Cherwell Edge when she was sick with the flu; while the Reverend Mother was in possession of the manuscript, it was seen by the 10-year old son of Sir Stanley Unwin, Rayner Unwin, who wrote such an enthusiastic review of the book that it was published by Allen & Unwin.