When I was writing a setting a while back I was doing research on elves and dwarves in regards to their mythological origin. In short, the term "Vættir" was applied to supernatural creatures and these nature spirits divide up into 'families', including the Álfar (elves) and Dvergar (dwarves).
I wanted elves & dwarves to appear more "fantastic", so I decided to make them one race. Thanks to a case of sexually dimorphism, all Vættir males appear like we normally see dwarves. All Vættir women are elves. They are generally "split" at birth and don't live in the same society. In general- the two sexes dislike each other a great deal. However, there is a single night out of the year where they put aside their differences. This night is the night of the festive of fertility, a celebration where Vættir pay respect to the goddess of fertility. (If you wanna use Germanic deities- Nerthus works).
Half breeds are common (try keeping it in your pants or staying off your back all but one night a year...) but sterile. The child of a elf and a dwarf is always the same- males are dwarves and female are elves. Anyone breeding with a dwarf gets a stocky, hairy version of their race. (I used the Halfing race and changed their weapon proficiency to dwarven weapons.) Females from dwarf fathers generally get picked on by other Vættir for being "masculine". Half-Elves (using the same race) come out much more gaunt and fair, making them look slightly more feminine. (Something the dwarves just can't stop laughing about... "frilly ass half humans!")
This came from the concept of "sexually dimorphism". Some species exhibit extreme physical differences between their genders (look at the angler fish!!!). I always saw dwarves as being a metaphor for males (hard drinking, big beards, strong, boxy body, rude, crude, brave, ect) while elves represented all that was feminine (grace, poise, patience, the ability to make a fine sandwich on command, slight build, ect) This became the next logical step in my brain.
What do you guys think? Anything else I should conciser?