We're huge Narnia/fantasy fans here. My kids have all been into CS Lewis and Tolkien. I generally wouldn't recommend LOTR for a very young child- it is quite dark and the lengthy prose and detailed descriptions are not as good read aloud as you might think. Unless your child is very thick skinned, I'd wait a few years. The Hobbit is far less challenging in every sense of the word than the LOTR trilogy. It has creepy bad guys, but not the intense evil you get in LOTR. I read that with my kids when they were preschool/kindergarten age, but waited until they were 8 or so to introduce them to LOTR.
I'd recommend the Edward Eager books, Percy Jackson, and ED Baker's series that begins with The Frog Princess.
Have fun!
