According to Tolkien, the Shire measured 40 leagues (120 miles) from the Far Downs in the west to the Brandywine Bridge in the east, and 50 leagues (150 miles) from the northern moors to the marshes in the south. This is confirmed in an essay by Tolkien (on the Languages of Middle-earth) wherein he describes The Shire as having an area of 18,000 square miles. In order for this figure to be accurate it must be assumed that the Shire was roughly rectangular in shape.
The Brandywine (Baranduin) river bounds the Shire from the east. (Hobbits also live in Buckland, which lies east of the river and west of the Hedge protecting the Shire from invasion from the Old Forest; however, Buckland is not formally recognised as part of The Shire until after the War of the Ring.) From the north and the west The Shire has no topographical borders, but rather is bounded by the ancient south and east roads, and by vague geographical features such as the Tower Hills.
The Shire was settled by Hobbits in the year 1601 of the Third Age (Year 1 in Shire Reckoning). It is not known why Hobbits (who originally lived in the vale of Anduin) chose to migrate west over the perilous Misty Mountains. It is known, however, that the Shire was initially a part of the Kingdom of Arnor. The Hobbits got official permission from the King at Norbury Fornost to settle the lands, which were not populated and seen as the King's hunting grounds. After the fall of Arnor, the Shire remained a minor but independent political unit. Its small size, relative lack of importance and brave and resilient Hobbit population made it too modest an objective for conquest.
This changed after Bilbo Baggins's acquisition of the One Ring in the year 1343 of the Shire Reckoning. Shortly after the beginning of the events described in The Lord of the Rings (autumn of the year 1419 in Shire Reckoning), the Shire was first visited by the Nine Ringwraiths and then captured by Saruman. It was liberated with the help of Frodo, Sam, Merry and Pippin after the end of the Quest of the Ring. After Aragorn's return as the King of Arnor and Gondor, the Shire became a part of his kingdom. He is known to have issued an order that forbade the entrance of full-sized Men into the Shire.
The Shire is described as a small but beautiful and fruitful land, beloved by its inhabitants. The Hobbits had an extensive agricultural system in the Shire, but did not proceed with industrialization. Various supplies could be found in the Shire, including cereals, fruit, wood and tobacco (a favourite treat of Hobbits). Its relatively peaceful existence during the perilous period preceding the defeat of Sauron can be attributed to the vigilance of Gandalf and Rangers of the North led by Aragorn who used daring tactics to keep evil at bay. However when these set out to a distant war, the Shire became essentially defenseless, which led to its capture. But the damage which Saruman caused by forced industrialization was undone by the Hobbits' efforts. The Shire was restored with soil from Lorien, given to Sam by Galadriel. The year 1420 (SR) was considered by the inhabitants of the Shire to be the most productive and prosperous year in their history.
The industrialization of the Shire was based on Tolkien's witnessing of the extension of the Industrial Revolution to rural Lancashire during his youth, and especially the deleterious consequences thereof. The rebellion of the hobbits and the restoration of the pre-industrial Shire may be interpreted as a prescription of voluntary simplicity as a remedy to the problems of modern society.
On Tolkien's maps, the Shire is located at about the same position as England is on modern European maps and has been cited as an example of Deep England ideology (of course, England being an island while Shire is inside the continent). Throughout the narrative, Tolkien also implies numerous points of similarity between the two, such as weather, agriculture and dialect. One can also see England as Tolkien's source of inspiration for the shire in its very name (Shire is English for "county" - see English Shire).