In Barrie's 1902 novel The Little White Bird, in which he introduced the mythos of Peter Pan and the fairies, he wrote, "When the first baby laughed for the first time, his laugh broke into a million pieces, and they all went skipping about. That was the beginning of fairies." The Disney Fairies are based on a similar idea: every time a newborn baby laughs for the first time, that laugh travels out into the world, and those that make their way to Never Land turn into a Never fairy.

The fairies generally reside in the Home Tree, a towering, massive tree located in the very heart of Pixie Hollow in Never Land. Various groups of fairies work and live nearby as well. Most of the fairy characters are young and female, but older, taller, and male fairy characters are also included. The males are sometimes referred to as "sparrow men," though the term "fairies" is used to refer to both female and male fairy characters.