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Magic...one of the things that separates fantasy roleplaying from period simulation is this mysterious force. Every setting handles magic in a slightly different way, with different rules governing spell effects, how powerful magic is, and who can use it. Indeed, in your setting magic may not be mysterious at all. In a good setting, there is always some underlying theory that holds magic together.

One familiar default is the division of...divine and arcane

One familiar default is the division of magic into two separate groups...divine and arcane. In this model, divine magic is granted by the gods or some higher power. Some exist who can draw on this power without a divine medium, such as druids, paladins, and clerics who adhere to an ideal rather than a specific god's teachings; thus, the source of divine magic generally involves the realm of belief. Arcane magic on the other hand is more of a hermetic pursuit; the intellect, will, or force of personality acts as the medium through which the caster controls unseen forces to bend reality to his will.

This division is a good place to start, but it only covers the ways in which those who will populate your world use magic. It doesn't focus on the nature of magic itself, nor does it add any flavor to the setting you are developing. In fact, you need not even make the distinction between divine and arcane magic in your world, though depending on the rules system you are using it may make your life easier later on if you do. I recently began developing a setting where the only distinction is on paper, and for all intents and purposes divine and arcane magic are one and the same. The key to this is the answer to the first question you should ask yourself when deciding how magic works in your world.

1) What is the Source of Magic?

Though it may remain a mystery to the players for the rest of the campaigns you run in your world, as the GM you still must know where magic comes from. There are many possible answers to this question, and none are better than any others. However, to maintain consistency and continuity it is important to decide the source of magic from the outset. It could be resonant energy left over from the death of an ancient god, a weave of unseen force that can be manipulated to achieve certain effects, or anything in between.

Just keep in mind that whatever you choose is going to lead to more questions that you must answer as you go along. Keep a few pages in your setting notebook where you list those questions as you build your world, and try to answer as many of them as possible before even running your first session in the setting. All that work will flesh out the ideas you had as you went along, and make your world a more believable place.

2) Place Limits

...it is still wise to place limits on exactly how powerful magic is.

While it is true that magic can accomplish things beyond the capabilities of average people, it is still wise to place limits on exactly how powerful magic is. Those limits can be set as low or high as you want...it is your world after all...but you must know where those limits are in order to determine where the power available to mortal men ends and that of higher beings begins. Unless you are building a very high-magic, high-fantasy setting, it would likely be wise to set a limit on what the gods themselves can accomplish with the power available from the source of magic you determined in the first step.

This is especially true when harvesting ideas from other sources to help put your setting together. Take the Forgotten Realms as an example. As prevalent as magic is, there are still limits as to what it can accomplish. Those limits are set quite high however, so you may want to think twice before allowing the Archmage prestige class from that setting into your world if a low magic feel is what you are after. Likewise if the Realms' ceiling on magic is too low for your tastes, you may want to make that same prestige class ten levels instead of five in order to suit what you had in mind for a very powerful wizard at the top of his game.

Whatever you do, try not to budge on where you set your limit as your campaigns in this setting progress. In the long run, you'll be glad you took the consistent approach. Just remember the carpenters' rule...measure twice, and cut once.

3) Decide How Common Magic Is

While this seems as though it should be loosely related to the previous point, it is important to note that whether or not magic is capable of incredible feats doesn't necessarily make it common. You could opt for a model where magic is only capable of relatively mundane effects but is as common as freckles, and likewise you could have a great deal of power in the hands of relatively few people. Deciding right at the start how common magic is will help you with the next step in making magic work in your new world.

4) Think About Society

Magic, more than many other things, will have an effect on the society of your world. Depending on how common magic is it will shape the rise and fall of empires, change the way armies do battle, add new angles to criminal intent, alter courting rituals, and even affect how fast or slow technology develops.

For example, a world with very common magic drawn from a known source that is capable of incredible effects will not likely develop technology as fast as a world with the opposite: uncommon, weak magic, drawn from a mysterious or unknown source. Just look at our own world and the amazingly fast technological advancement we have achieved compared to that of some of your favorite fantasy settings. That's not to say however that a high-magic world wouldn't seem as advanced as a high-technology world. For another example, there was a city in the setting that inspired this series of articles which had almost a sci-fi like feel to it simply due to the amount of time they had been experimenting with magic in open, regimented ways.

The main thing to keep in mind is that magic will shape society -- not just after your campaign starts, but before that as well. Work it into your timeline, and make sure that it has an impact on the culture and society of your world in the same way that technology would.

5) Never Ever Ever Forget About Scrying

So many campaigns have been ruined by the powers of divination and foresight. If scrying, prophecy, and remote viewing are magical effects you want in your world determine from the outset how they work and the limitations on those abilities. Some settings will have their flavor reinforced by the simple gift of vague foresight, but others need grand bold prophecies in order to fulfill the Gamemaster's vision.

Are visions and portents hard to decipher, or are they clear cut? If you have made a distinction between arcane and divine magic, you will also need to consider that distinction when it comes to this point as well. Can only the gods grant visions, or can a wily sorcerer glean some truth from a few well cast stones?

Essentially, you need to know what access your players will have to information about the world, and what information the world can find about your players through the use of magic. Drawing the lines before you run into any issue will save a lot of problems later on down the road, and give the setting you are building one more layer of "believability" when the players see that though magic can help them learn about the world around them, it can help their allies as well.

6) Magic Items

Magic items can make a fantasy story truly memorable.

Magic items can make a fantasy story truly memorable. Elric had Stormbringer, Arthur had Excalibur, Aladdin had the lamp, and Frodo had that bloody ring. Since the goal of most fantasy campaigns is to tell a compelling story as a group through the actions of the heroes, it feels natural to include things such as these into our worlds. It is therefore crucial to the world design process to determine how things come to be in your world, and how prevalent they are. Apply all the same steps as you would for magic itself to the items that those who wield it can create. If you want a low fantasy campaign with grit and scars, it's not a good idea to place an apothecary in each village to dispense healing potions to all the adventurers that pass through town.

The same goes for magical weapons. In some settings, it suits the feel of the campaign to have the players constantly trading up for better and stronger weapons. I personally do not like the disposable feel that this can lend to magic, and so opt for a different approach. I design magical weapons that grow in power with the user so as to reinforce how special magic is, rather than cheapen it.

7) Allow for Growth

As with all aspects of world design, make sure you leave room in your world for the growth and evolution of magic, if that is something you so desire. If you would rather magic be a static, unchanging force then this is not as important; but sometimes going against your vision can create interesting events in your world. Things like this should be rare occurrences however so that when, for example, a new kind of magic is discovered during the campaign it really feels special, rather than coming across as cheap.

The most important thing to remember when laying out how magic works in your world is that it is just that...magic. Not every question needs an answer right away, but a strong framework of how you want your setting to feel when it comes to the topic of magic will help you decide what is a good fit for your world, and what is not. Make rules, but don't be afraid to break them for dramatic effect.