The invention of the word is traditionally ascribed to J. R. R. Tolkien, whose The Hobbit was first published in 1937. The Oxford English Dictionary since the 1970s has credited Tolkien with the invention of the word. Since then, however, it has been noted that there is prior evidence of the word, in a 19th-century list of legendary creatures. In 1971, Tolkien stated that he remembered making up the word himself, admitting that there was nothing but his "nude parole" to support the claim that he was uninfluenced by similar words of the hobgoblin family.
By Tolkien's own account, the coining of the name hobbit was a spontaneous flash of intuition. When he was busy grading examination papers, the word popped into his mind, not in isolation but as part of an entire sentence, which was to become the incipit of The Hobbit, "In a hole in the ground there lived a hobbit."
Tolkien etymologized the name hobbit as the regular Modern English outcome of a hypothetical Old English *hol-bytla "hole builder". Within the linguistic fiction of The Lord of the Rings, the English etymology of Old English hol-bytlan → Modern English hobbit is the supposed translation of an "original" etymology of Rohirric kud-dukan → Westron kuduk.
The hol-bytlan etymology notwithstanding, the name hobbit as designating a diminutive legendary creature fits seamlessly into a category of English words in hob- for such beings. The Middle English word hobbe has manifested in many creatures of folklore as the prefix hob-. Related words are: hob, hobby, hobgoblin, Hobberdy Dick, Hobberdy, Hobbaty, hobbidy, Hobley, , hobble, hobi, hobyn (small horse), hobby horse (perhaps from Hobin), Hobin (variant of the name Robin), Hobby (nickname for Robert), hobyah, Hob Lantern.