This short, insightful review was published in the London Times Literary Supplement (2 October 1937) and appears as a chapter in C.S. Lewis: On Stories and Other Essays on Literature, edited by Walter Hooper. It is wonderfully prophetic!
"The publishers claim that The Hobbit, though very unlike Alice, resembles it in being the work of a professor at play. A more important truth is that both belong to a very small class of books that have nothing in common save that each admits us to a world of its own—a world that seems to have been going on long before we stumbled into it but which, once found by the right reader, becomes indispensable to him. Its place is with Alice [by Lewis Carroll], Flatland [Edwin Abbot], Phantastes [George MacDonald], The Wind in the Willows [Kenneth Grahame].
"To define the world of The Hobbit is, of course, impossible, because it is new. You cannot anticipate it before you go there, as you cannot forget it once you have gone. The author’s admirable illustrations and maps of Mirkwood and Goblingate and Esgaroth give one an inkling—and so do the names of the dwarf and dragon that catch our eyes as we first ruffle the pages." But there are more dwarves than you can easily count, "and no common recipe for children’s stories will give you creatures so rooted in their own soil and history as those of Professor Tolkien—who obviously knows much more about them than he needs for this tale.
"Still less will the common recipe prepare us for the curious shift from the matter-of-fact beginnings of his story ('Hobbits are small people, smaller than Dwarves—and they have no beards—but are very much larger than Lilliputians' in chapter 1) to the saga-like tone of the later chapters ('It is in my mind to ask what share of their inheritance you would have paid to our kindred had you found the hoard unguarded and us slain' in chapter 15). You must read for yourself to find out how inevitable the change is and how it keeps pace with the hero's journey. Though all is marvelous, nothing is arbitrary: all the inhabitants of Wilderland seem to have the same unquestionable right to their existence as those of our own world, though the fortunate child who meets them will have no notion—and his unlearned elders not much more—of the deep sources in our blood and tradition from which they spring.
"For it must be understood that this is a children’s book ONLY in the sense that the first of many readings can be undertaken" when a child is very young. "Alice is read gravely by children and with laughter by grownups; The Hobbit, on the other hand, will be funnier to its youngest readers, and only years later, at a tenth or a twentieth reading, will they begin to realize what deft scholarship and profound reflection have gone to make everything in it so ripe, so friendly, and in its own way so true. Prediction is dangerous: but The Hobbit may well prove a classic."