I was kind mulling over a campaign sitting not too unlike this just a few months ago. I started with a map of Australia. Next I created a history wherein dwarves had traditionally ruled the island-continent from their mountainous home at the center of the landmass. The dwarves had been constantly besieged by humanoids, so were quite thankful when a powerful human wizard arrived with plans for a doomsday machine. The dwarves in their desperation, built the machine and activated it. The machine had the desired effect of killing a great many humanoids, but it also killed dwarves and leveled their homeland to desert. The dwarves, all save the royal clans, fled east where they built up a new civilization along the east coast- cities, railways, and even a great wall to keep out any surviving humanoids. The dwarves aligned themselves in great guilds not unlike the clans from Legend of the Five Rings. The former royal clans fled west where they built their own city (and degenerated into duergar and derro). The human wizard who sold the dwarves on the doomsday machine used the power that it generated with the consumption of all of those lives to ascend to lichdom.
At the start of the campaign, the dwarves, now resettled on the east coast, are starting to again be plagued by humanoids, so they have put out an open call for mercenaries from other lands to aid in the fight. They're also importing indentured servants (humans and halflings) in large numbers to help with public works.
In the age before the dwarves ruled the island-continent, the elves were the dominant race there. They now cling to islands (maybe flying islands) just off the coast where they live tribal lives and have close ties to the elements of air and water (whereas teh dwarves have close ties to earth and fire). Gnomes have been like a sister race to the dwarves, always living in close association with them, as they still do. The gnomes have sort of a tinker-light feel, more professorial if you will.
Chad