The history of Gnomes is closely tied to that of their Dwarven cousins. In the Age of Might, when pride and greed corrupted the dwarves, the goblinoid races came to plunder the wealth of the dwarven under cities. Because of their actions, the dwarves were not protected by the essence of Earth, and they suffered greatly. The dark dwarves accepted a deal from Death, and were further corrupted, but another clan of dwarves accepted a deal from the essence of Life. The dwarves and the two clans defeated the goblinoid races. When the dark dwarves tried to attack their kin, however, the clan that accepted Life's power helped the rest of the dwarves banish their darker kin to the bowels of the underrealm.

The clan of dwarves that accepted Life's bargain, though, were not completely unaffected by Life's power. Since the dwarves were created by the essence of Earth, the power granted to the clan by Life changed the clan to the very core of their beings. They no longer cared for the drinking and tests of battle that the dwarves indulged in. They also lost all interest in weaponsmithing, the art of which the dwarves had become masters. They found the lifelessness of their undermountain stifling, and they longed for the lush vegetation and wildlife of the surface. The other dwarves realized that their kin no longer fit into their underground society and a mutual agreement was reached that the clan move to the surface.

The clan moved to the surface to inhabit the forests and hills near the entrance to the dwarven undercity, where they formed small villages. The clan, realizing that they no longer belonged to the race of dwarves and had become a race of their own, called themselves Gnomes. In the forests of the surface, the gnomes mastered arts of their own. They used the vegetation of the surface to create poultices and potions, which were the first healing arts that the gnomes or the dwarves encountered. They did not want to sever all relations with the dwarves, however, who they still considered cousins. Thus, when the dwarves again started trading with the outside world, the gnomes had goods of their own to trade, and both societies prospered. Both the gnomes and the dwarves, though, remembered what happened in the past when the goblinoid races, which both races still hated with a vengeance, heard of the great dwarven wealth. Therefore, the gnomes agreed to help the dwarves keep the secret of their riches from the other races of the surface.

When man encountered the races of gnomes and dwarves, they discovered weapons of quality that far exceeded their own. Man needed weapons to help in their battle against Death, since not all men could control the elements. The gnomes, however, wanted no part in the war, wanting instead to simply be left alone. They withdrew into the wilderness and almost from surface society altogether. They still traded with other races, but avoided conflict whenever possible. Over time, the other races practically forgot about the gnomes, who rarely drew attention to themselves, and that's just the way the gnomes like it.