Samantha Brethel breaks it down:
The fantasy genre is very interesting because of the discrepancies people have in assigning the criteria a book must have to be considered a work of fantasy literature. However, after discussing it in class, I have come to the conclusion that for a novel to be considered fantasy, it must have a few of the following elements: some form(s) of supernatural elements or mythological creatures; have a character-driven plot; and incorporate some sort of journey or mission. J.R.R. Tolkien's The Hobbit incorporates these elements fully, making his novel one of the most famous fantasy books. And the entire Chronicles of Narnia by C.S. Lewis is also a series that fully incorporates the elements necessary to make a novel belong to the fantasy genre, and to really keep this genre separate from science fiction, where the lines become blurred.
The plot of The Hobbit is indeed character driven; the dwarves and Bilbo go on a journey to the Lonely Mountain to take back their treasure that was stolen from them by the dragon Smaug. The entire novel consists of their journey getting to Smaug's lair, and then the battle to get back their gold. You follow the fourteen of them, and occasionally Gandalf the wizard and a few others, until they do actually defeat Smaug.
The same is true of The Magician's Nephew, the first (though written next-to-last) in the Narnia series. The two main characters are Digory and Polly, the children who first enter the world that is to be Narnia long before Lucy, Edward and their siblings go through the wardrobe. The readers follow the kids as they go into Charn and Narnia and meet Jadis, the soon to be White Witch, and Aslan the Lion. We follow them between our world and the other worlds until they finally get back to their world and get the apple to cure Digory's mother. The story ends with a nice little conclusion about how the children grow up and live happy lives.
Both novels incorporate a number of supernatural elements and made-up creatures, something all fantasy novels must have. Tolkien's story has not only dwarves and a wizard, but goblins, giant spiders, hobbits, wood elves, river elves, a Necromancer, a super-powerful giant man, a dragon, and a strange hobbit-hybrid creature named Gollum. Each one of these creatures has its own history and own culture; hobbits are specifically creatures of comfort who eat several times a day and never do anything exciting. That is their own specific culture, which is very different from that of, say, a dwarf, who lives underground and tunnels for treasure and loves adventures. The wizard Gandalf is a good wizard, and later on in the series you meet another wizard who is evil. Not every creature of every race is the same in every story, and the same is true of the creatures within this specific story. Bilbo breaks the barriers of hobbit normality by going off on the adventure with the dwarves.
The creatures invented with Lewis's story also are specific to his creation. While witches were not invented by Lewis, he invents her powers to make her unique to his story. Aslan, the talking Lion who creates the land of Narnia is also tailored to specifically meet the needs of this story. Of course Lewis didn't invent lions, but he did create this specific lion. In later stories in the Chronicles, other magical creatures are introduced (though most of them are talking animals).
Science fiction and fantasy are two separate genres, but often it is hard to differentiate between the two. I think Tolkien and Lewis help to make that distinction very clear; if there is an absence of technology (i.e. something invented by man, or seemingly futuristic) it belongs to the fantasy genre. If it's in a more futuristic setting or incorporates technology like spaceships, aliens, or otherworldly inventions, it definitely falls into the science fiction category. Other novels that incorporate some of the same things found in Middle-Earth and Narnia can be considered fantasy because of the absence of science-fiction elements.
Both of these fantasy stories have their main characters going on journeys to get something and get back home, and their treks through the magical lands with the fantasy creatures are what drives the plot. We read these stories to see what will happen to the characters and their friends on their journeys; will they make it back alive? Will they accept that there are magical worlds and mythological creatures that can help them on their ways? These very elements justify these novels as belonging in the fantasy genre. They aren't science fiction, nonfiction, romance novels, or coming of age (though The Magician's Nephew might fall into that last category). Tolkien's The Hobbit and Lewis's The Magician's Nephew both embody these characteristics and define the genre that is fantasy literature.