With the arrival of Advanced Dungeons & Dragons, the dwarf was returned to a player character race in the Player's Handbook (1978) and detailed as a monster in the original Monster Manual (1977). The dwarf and other non-human characters are considered their own classes in the original Dungeons & Dragons Basic Set (1977) and its sequels, where they were only permitted a maximum level of 12 (compared to the Halfling's 8, the Elves' 10, and the human classes 36). With the release of the first supplement, Greyhawk, in 1976, they were then allowed to play a thief with no level restriction. This early version of the D&D dwarf is limited to playing a fighter, and can not progress beyond the sixth level. The dwarf first appears as a player character race in the original 1974 edition of Dungeons & Dragons, with a design that is strongly influenced by the dwarves of Poul Anderson's 1961 novel Three Hearts and Three Lions.

Along with giants, dwarves were one of the first types of non-humans to be introduced into the Chainmail game, the forebear of D&D, when miniature figures of varying sizes were used together in the same wargame. In particular, the dwarves in the Germanic story The Ring of the Nibelungen and the Brothers Grimm fairy tale ' Rumpelstiltskin' have been called 'ancestors' of Dungeons & Dragons dwarves. The concept of the dwarf comes from Norse and Teutonic mythology.

Mountain dwarf vs hill dwarf