Contemporary fantasy, also known as modern fantasy or indigenous fantasy, is a subgenre of fantasy, set in the present day or, more accurately, the time period of the maker. It is perhaps most popular for its subgenre, urban fantasy.
Strictly, supernatural fiction can be said to be part of contemporary fantasy - since it has fantasy elements and is set in a contemporary setting. In practice, however, supernatural fiction is a well-established genre in its own right, with its own distinctive conventions.
These terms are used to describe stories set in the putative real world (often referred to as consensus reality) in contemporary times, in which magic and magical creatures exist but are not commonly seen or understood as such, either living in the interstices of our world or leaking over from alternate worlds. It thus has much in common with, and sometimes overlaps with secret history; a work of fantasy in which the magic could not remain secret, or does not have any known relationship to known history, would not fit into this subgenre.
Novels in which modern characters travel into alternate worlds, and all the magical action takes place there (except for the portal required to transport them), are not considered contemporary fantasy. Thus, C.S. Lewis's The Lion, the Witch and the Wardrobe, where all fantasy events take place in the land of Narnia which is reached via a magic wardrobe, would not count as contemporary fantasy; on the other hand, the part of The Magician's Nephew, where the Empress Jadis gets to London, tries to take over the Earth and clashes with police and a crowd of cockneys, would qualify as such.
Contemporary fantasy is generally distinguished from horror fiction – which also often has contemporary settings and fantastic elements – by the overall tone, emphasizing joy or wonder rather than fear or dread.