In the late 1980s, a number of fantasy authors began to write about the various creatures and tropes of fantasy like elves, other supernatural beings, and magic in contemporary times in big cities rather than the past or in mythic places.
The Encyclopedia of Fantasy defined these urban fantasy novels as “texts where fantasy and the mundane world interact, intersect, and interweave throughout a tale which is significantly about a real city.”
Authors like Charles de Lint created stories where the real urban world and Fairy met. Other writers during this period include Emma Bull and Mercedes Lackey.
The heart of these stories are folkloric in tone with a sense of a fairy tale being retold in modern terms. The language of the novels is lyrical and poetic, and events from the main characters' point of view have a sense that something may or may not be happening.
This type of urban fantasy is now called traditional urban fantasy, and a current writer is Neil Gaiman.
In the late 1990s and beyond, a different type of urban fantasy began to appear. These novels had their basis, not from fairy tales, but from the horror and mystery genres. Other media influences included the TV show, BUFFY THE VAMPIRE SLAYER.
These contemporary urban fantasies were popularized by Laurell K. Hamilton with her Anita Blake novels. They have a strong protagonist who has some form of supernatural power.
The narrative is usually in first person, and the world has a strong sense of good and evil.
The real world is the gritty reality of the big city where the natural and the supernatural mix, often to disastrous results. The main character usually has a probable sexual and crime-solving partner who is supernatural and a forbidden sexual partner either by society or by her/his own standards.
The main driving plot is a mystery which the main character must solve to prevent chaos, whether it be preventing bad supernaturals from harming humans or some form of disaster from occurring.
Most often, the main character is in law enforcement-- a police officer, a private detective, or a bounty hunter.
Mysteries by themselves have many varieties including the cozy and the detective novel, the police procedural, the spy novel, and the thriller.
Each type of mystery has an urban fantasy equivalent. Here are some examples.
COZY: An amateur detective solves a murder with minimal blood and violence involved. (Think Miss Marple or MURDER SHE WROTE)
Charlaine Harris' Sookie Stackhouse/TRUE BLOOD novels.
PROFESSIONAL AMATEUR DETECTIVE: A professional in a specific setting uses his insider information to solve a crime. The Dick Francis novels about horse racing are a good example.
Marjorie M. Liu's "Hunter Kiss" series. The heroine's job is to kill demons, and she must solve mysteries involving them.
POLICE PROCEDURAL: Think LAW AND ORDER or any serious cop show.
Keri Arthur's Riley Jenson series
Anton Strout's DEAD series. Paranormal NYC government agency which takes care of paranormal threats and covers them up. Hero Simon is an ex-thief who uses psychometry to read objects.
CE Murphy series. Shaman cop Joanne Walker.
Many of Kelley Armstrong's "The Otherworld Series."
Kat Richardson's “Greywalker” novels.
Jim Butcher's "Dresden Files."
THE FORENSICS MYSTERY: CSI:Magic Division.
Laura Anne Gilman's HARD MAGIC. Magic (the current/electricity) is seen as a science with spells. A group of young Talents is brought together to create the first forensic magic investigative team.
THE SPY NOVEL:
Simon R. Green's Eddie Drood novels.