Legends in Isaldor
Gnomes are the shortest of all of the civilized races. They are also not very common to see away from their coastal bastions. There is only one race of gnomes and that is because of natural selection by predators. Gnomes are oft beset by giants and gryphons. Giants attack them because gnomes have established their capitol on Wotanslanding, the place where Wotan made his first landfall in Isaldor. They share their god, but giants don’t believe gnomes are worthy of living there, since they are also open to worship of other gods. The gryphons prey on them because the city is directly inside of their ecological center and gnomes are… well… bite-sized.
They are the product of a lost tribe of dwarves who found themselves forever trapped in the Fey Wood, an area occupied by Gaia, the goddess of the Wilds. It’s full of fairies. The dwarves, consigned to their immortal sentence of staying there never left, but the children they had with the fairies became the gnomes. This explains much of their whimsical nature and magical knack.
They say that necessity is the mother of invention. If so, then gnomes must be consistently in a crisis, since they are constantly inventing new means of dealing with their big world and even bigger problems.