Dwarfs is the standard plural of the noun dwarf. This has been so for centuries. Dwarves is a variant popularized (though not invented) by English author J.R.R. Tolkien in his fantasy fiction works, including The Hobbit and The Lord of the Rings. The Tolkien spelling is appropriate when referring to little people in fantasy worlds. Dwarfs is better everywhere else.
Dwarf also works as a verb meaning to cause to appear small in size. In this sense, dwarf is inflected dwarfs, not dwarves, in the singular present tense.
There is controversy over whether dwarf is ever an appropriate term for real-life people, but we won’t go into the nomenclature issues here.
Example
Dwarves is appropriate when it relates to Tolkien’s work or another fantasy world—for example:
The latest teaser picture for the forthcoming adaptation of the Hobbit has been released, showing a trio of hardy warrior dwarves. [Daily Mail]
Along the way they encounter dragons, dwarves, merfolk, and a band of lost warriors before reaching the edge of the world. [NJ.com]
This world is made up of wizards, dwarves, witches, vampires and a variety of other characters. [Guardian]
And dwarfs is the standard plural for real-world dwarfs—for example:
Most varieties grow about two feet tall, though some dwarfs are only half as tall. [Sioux City Journal]
Dwarfs tend to be used for “eating fresh,” and the tall forms for coconut oil and for fiber. [Laboratory Equipment]
The brown dwarfs are an estimated to be 15 light years and 18 light years from the sun. [MyFox Atlanta]
And here are two examples of dwarfs used correctly in the verb sense:
God is poking his tongue through the Puyehue volcano, whose carbon output dwarfs industry’s. [Sydney Morning Herald]
A giant drill, used for projects like the Chilean Miners rescue, dwarfs nearby houses in Newcastle’s West End. [BBC]
