FAQ / Where do dwarves come from
Aulė, the Valar, the Smith, was curious and anxious of the coming of the Firstborn to the world. He desired people to whom he could teach his craft. Under the mountains in Middle-earth for fear the other Valar would not agree with his work, he carved the fathers of the Dwarves out of stone. He made them strong and unyielding, made them to love the earth and all the riches it would provide.
But Ilśvatar was aware of Aulės work. He spoke to Aulė concerning these new people and pardoned them, adopting them as an inhabitant to Arda. But Eru would not have the Dwarves come before the Firstborn so Aulė caused them to sleep until the awakening of the Elves.
Authored by TTFMember:Anamatar IV