In 1915, Edgar Rice Burroughs published a novel called Pellucidar, which was about a fictional realm beneath Earth's surface. Tarzan ended up visiting it, I think. But fantasy fiction existed long before then. We tend to think of the genre in Tolkien-esque terms since The Lord of the Rings was so influential. Hans Christian Anderson wrote fairy tales. Jacob and Wilhelm Grimm collected folklore in their native Germany. Shakespeare's The Midsummer Night's Dream features the fairies Oberon, Titania, and a number of servants.
Today, I see a lot of adaptation in fantasy. The 2007 novel Beastly, for example, is merely a modern retelling of Beauty and the Beast. I don't even know where to begin with Tim Burton's monstrosity of an Alice in Wonderland series. But there are original works out there. George R.R. Martin's Song of Ice and Fire might be in the medieval European style of Tolkien, but has a degree of realism that even Tolkien didn't reach. J.K. Rowling's Harry Potter series was extraordinary in taking a fantasy world and weaving it into the present day. Even Vin Diesel's latest film The Last Witch Hunter, while never Oscar-worthy from the start, at least had the balls to try doing something that hadn't been done before in putting witches in the modern world.
We live in a world of science, logic, and rational thought (at least, until you bring out the crazies during election season). The world is smaller. We've got satellites mapping everything on and off Earth. We can design our children, build computers with increasingly complicated lines of thought, and use atoms as calculators. Magic seems to have no place anymore.
This juxtaposition of science and magic is where I think the future of the genre lies. I think we're going to see even more fantasy fiction mixing the ancient and the modern. For one thing, it makes it a world more identifiable to the audience. We might not understand everything about orc culture, but we can understand Thrall, CEO of Orgrimmar, Inc., because we have mega-rich corporate executives in the real world
I think this will ultimate be a wonderfully unpredictable path for fantasy fiction because of how unpredictable and crazy science has advanced. You can expect certain things to happen in what I like to call archaic fantasy - the medieval kind - because we have history serving as a reference. Nobody had heard of ISIS five years ago. In another five years, will the Kingdom of Faolith rise from an elven insurgency? Maybe.