The term 'urban fantasy' has been in use from the early 20th century. Many authors, publishers, and readers particularly distinguish urban fantasy from works of paranormal romance, which use similar characters and settings, but focus on the romantic relationships between characters.

Common themes include coexistence or conflict between humans and other beings, and the changes such characters and events bring to local life. Urban fantasy is most often a sub-genre of low fantasy (where magical events intrude on an otherwise-normal world) and/or hard fantasy (treating magic as something understandable and explainable), and works may be found in the sub-genres of horror, occult detective fiction, or the various 'punk' genres. The city-setting is a tool used to establish a tone, to help move the plot, and may even be acknowledged as a character itself. The period in which the action occurs may be the fairly recent past or the near future, but will typically require merely only casual historical or other special knowledge from the reader. Common use of contemporary technologies (such as automotive vehicles or communications technology) and everyday community and social institutions (such as libraries, schools/universities, or markets) also establishes a familiar context. The urban component is usually found in the setting-typically a large or small city-or even a suburban community in a metropolitan area. Authors may use current urban myths, borrow fictional technologies, or even invent occult practices, as well as using established supernatural characters and events from literature, film, or comics. Fantastic components may be magic, paranormal beings, recognizable mythic or folk-tale plots, or thematic tropes (such as a quest, or a battle of good and evil). Such elements may exist secretly in the world or may occur openly. Urban fantasy combines selected imaginary/unrealistic elements of plot, character, theme, or setting with a largely-familiar world -combining the familiar and the strange.

The genre's wide popularity began in 1980s North America, writers and publishers encouraged by the success of Stephen King and Anne Rice. While precursors of urban fantasy date back to the 19th century, present use of the term dates back to the 1970s. The combination provides the writer with quixotic plot-drivers, unusual character traits, and a platform for classic fantasy tropes, without demanding the creation of an entirely-imagined world. Urban fantasy is a subgenre of fantasy, placing supernatural elements in an approximation of a contemporary urban setting.

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