This paper attempts to scrutinize and analyse Tolkien's high epic fantasy novel, The Hobbit, in the light of Derrida's views on literature as a liberal institution. Many scholars have read this novel through the lens of European mythologies, Abrahamic theocracy, etc. because Tolkien's text lends itself to such readings by practicing liberality. However, all these trends have a common overarching finalization; that is, finding a certain originarity for Tolkien's sub-created cosmos. While as a Derridean reading, this study contemplates the impossibility and danger of searching for originarity to disinter and discover new pleasures of reading Tolkien, it also seeks to investigate the affinity that exists between Derridean terms such as undecidability, iterability, and alterity, and Tolkien's text itself. This is crucial because the aim here is to explain the liberal power and the liberality of Tolkien's text according to Derridean concepts. The argument is that the text of The Hobbit is a stage on which the above-mentioned concepts interplay and the flow and dynamism of the story is guaranteed by literature as a liberal institution. This is while the play of structure is at work in The Hobbit's narrative to keep the stories' continuum alive and dynamic. This means that the story, with its liberal power, neutralizes any claim over ideality by constantly revisiting its own context. Accordingly, finalized and whole identities, presences, and claims are challenged and destabilized by the undecidable discourse of the story, and as a result more meanings and possibilities are revealed in a provocative reading.