Once upon a time, there was a Sindran wizard (well, actually, he was an expatriate Celari, but we won't go into that) called Gnarl Hoftadlar. Gnarl was very much into alchemy, and was continually conducting rather more simultaneous experiments than was advisable. So, one day, after a particularly messy explosion, he decided some help around the alb would be useful. After much experimenting, and the occasional explosive dead-end, he created the perfect lab assistant, the Gnomes. They were small, bright, peaceful, inquisitive (but still possessed of a healthy self-preservation instinct), tough and long-lived (ironically for an alchemist, Gnarl saw no point in making something he had to replace on a regular basis), had a natural affinity to alchemy and magic, a keen sense of smell, and wonderful singing voices (Gnarl liked to sing and hum while he worked, so created his new minions to act as a good chorus).
A Note on the Name "Gnome" and the creation of the creatures: Gnarl created the Gnomes primarily from lumps of Sindran clay. The process also involved (for reasons this writer does not ordain to understand) biological samples from dwarf, elf and goblin subjects, and copious amounts of lite ale. While the results as just as fleshy as a human or dwarf, their earthy basis gave their creator the idea for this name, based upon the earth-spirit Gnomes he had once encountered in the mountains above his home. This leads us to the conclusion, that while Gnarl was a powerful mage, he wasn't very original with naming things.
A Short (haha) History of Gnome-Kind
Gnarl found his Gnomish minions to be exceptionally useful around the tower, as did some of his wizardly friends when they came to visit. After much badgering, Gnarl began selling his "spare" Gnomes to his friends (mostly his drinking buddies from the yearly alchemy conference in Malbarion). Thus the Gnomes became scattered across the grave, working as lab assistants, cleaners, and background vocals for alchemists as far afield as Celar, Laöch, and Koval. But that was years ago, and now the Gnomes are a free people, so, how did that happen?
It's really quite simple. Gnarl built the Gnomes far too well.
The Gnomes where designed to be tough and long-lived. As such, they tended to out-live their owners. Even if they got passed from one generation to another, they would eventually end up in the hands of a alchemist who would die without children (either from one of his experiments, or because alchemists aren't really good at having social lives). So, the Gnomes ended up free. They now wander the Grave, seeking out work where their natural talents can be put to good use, and while they're a rare race, they make an impact where they're found. They aid Celari alchemists in their explosive endeavours, make blackpowder for Elu Island pirate kings, use their musical talents to help the Lyric Brotherhood, design new kinds of incense in Boru, and alchemical coal in Laöch. In Dreed they make the most unusual and complex sauces known to man (unfortunately, they're invariably an acquired taste to anybody but a Gnome), and in Yem it's rumoured that a group of nine Gnomes is working with a rogue necromancer to create an alchemical solution that will keep snow solid at room temperature.
Admittedly, not all Gnomes pursue such lofty careers. Many satisfy themselves running an inn with an unusually complex cocktail bar.
Temphisian Gnomes are to be handled with care. Their natural/artificial magic nature means those born there tend to absorb the Temphis curse, which usually manifests as a native talent for very destructive and somewhat indiscriminate magic. Gnomes from other countries are puzzled as to why Temphis humans get so nervous around them.
So, What Happened to Gnarl?
Nobody is really sure. His tower is still there, but it is now the centre of Gnarlwood, the only all-Gnome community in Uresia. Whether he died of an experiment, old age, was killed by his Gnome slaves, or gave the Gnomes his tower and just wandered off elsewhere is a matter of speculation and contention. The Gnomes refuse to comment. Likewise, nobody knows what happened to the formula for creating Gnomes, except that the Gnomes don't use it, even if they do possess it (they create new Gnomes just like humans create new humans, and get just as much fun out of the process Scholars still speculate as to why Gnarl designed them like that). Thieves have attempted to break into the tower to find and steal Gnarl's notes, but none have yet succeeded. Or, indeed, returned to tell the tale.