In The Hobbit, the player takes control of the titular halfling Bilbo Baggins and follows him on a grand adventure across Middle-Earth. Gandalf the Wizard selects Bilbo to help a party of thirteen dwarves rescue their ancestral home back from Smaug the Dragon; he will be their burglar. During the party's travels, Bilbo will find himself battling orcs, goblins, wolves, and spiders, as well as sneaking past trolls and collecting a lot of side-quest items.
As a character, Bilbo does not have an incredible amount of abilities. He can throw stones to knock down items and ward off foes, strike enemies with his walking stick and later the sword Sting, climb ropes and ladders, pick locks via a selection of mini-games, sneak to avoid detection, and use the One Ring to turn invisible. Bilbo can also collect silver pennies which can be used to purchase helpful items from a vendor at the end of each level. There's a small RPG element in The Hobbit; Bilbo gains Courage Points experience for defeating monsters and completing side-quests, increasing his health. Scrolls teach Bilbo abilities which he can use for battle and other situations throughout the game.
- Dreamworld: Bilbo passes out when the thirteen dwarves visit and Gandalf informs him of his part in their plot. A dream sequence shows us Bilbo at the Battle of Five Armies with a number of power-ups and weapons.
- An Unexpected Party: The dwarves are ready to set out on their adventure, and Bilbo needs to get to the Green Dragon Inn as soon as possible.
- Roast Mutton: There's a strange campfire light in the forest. Bilbo investigates.
- Troll-hole: Bilbo must explore the troll cave for a special key.
- Over Hill and Under Hill: After a terrible fall, Bilbo must get back to the dwarves.
- Riddles in the Dark: Bilbo is lost in a goblin-infested dwarf mine, and must fix broken lifts as well as rescue a dwarf of the Iron Hills.
- Flies and Spiders: Bilbo must find his way through Mirkwood Forest. He also has to fight the Wight Lord's minions and save his dwarven friends from being eaten by three giant spiders.
- Barrels Out of Bond: Bilbo and the dwarves are not safely out of Mirkwood just yet. The dwarves are captured by elves, and Bilbo must find a way to rescue them, as well as a way to escape, while avoiding being seen by elves.
- A Warm Welcome: The dwarves and Bilbo escape to Lake-town, where they are welcomed by its inhabitants. Bilbo performs numerous missions for the town guard, such as expelling a group of thieves and goblins from Lake-town.
- Inside Information: Bilbo must steal the golden cup of Thrór from Smaug without waking him.
- The Gathering of the Clouds: Bilbo must find the Arkenstone for Thorin, as well as power the rooms of Erebor.
- The Clouds Burst: This level is The Battle of Five Armies. Bilbo must fight or sneak his way through the battle to deliver a message to Bard of Lake-town, saying that the goblins of Bolg's army planning to sneak attack from behind.
Fun fact: Dreamworld and Troll-hole are the only two chapter level titles not taken directly from J.R.R. Tolkien's The Hobbit.
- Bilbo Baggins (voiced by Michael Beattie): The main character of The Hobbit, as well as the game's only playable character. His weapons include Sting, a walking/fighting stick, and collectable rocks. Throughout the game, Bilbo collects scrolls that give him new or improved attacks. He appears in all levels.
- Gandalf (voiced by Jim Ward): A wizard helping to organize the Quest of Erebor with Thorin.
- Narrator (voiced by Tom Kane): Tells Bilbo's story during the game's animated cutscenes.
- Thorin Oakenshield (voiced by Clive Revill): The King under the Lonely Mountain trying to reclaim his homeland from Smaug the dragon.
- Fili, Kili, Oin, Gloin, Dwalin, Balin, Bifur, Bofur, Bombur, Dori, Nori, Ori: Twelve of the thirteen dwarves accompanying Bilbo on his journey.
- Bard the Bowman (voiced by Andre Soqliuzzo): The Captain of the Town Guard in Lake-town.
- Lianna (voiced by Jennifer Hale): An elf of Thranduil's Hall in Mirkwood. Bilbo must heal her in the troll cave, and she'll eventually help Bilbo escape from Thranduil's Hall. She did not appear in the book.
- Corwin: A heartbroken woodsman from Laketown. The only survivor of a spider attack on his camp. In return for Bilbo finding a special item, Corwin will help the hobbit get through a thick web. He did not appear in the book.
- Balfor (voiced by Wally Wingert): A dwarf of the Iron Hills being kept as a slave for the goblins. Once freed by Bilbo, Balfor goes on to kill goblin guards and show Bilbo how to escape. He did not appear in the book.
- Gollum (voiced by Daran Norris): The previous owner of the One Ring before Bilbo found it in his cave.
Music for The Hobbit was composed by Rod Abernethy and Dave Adams and recorded live in Seattle with the Northwest Sinfonia. The game's soundtrack won "Best Original Soundtrack of the Year" at the Game Audio Network Guild Awards held at the Game Developer's Conference in 2004.