Hobbit Hole
The dwellings of hobbits are called hobbit holes, well-built and homey dwellings that just happen to be built into the side of hills. Inside them you won't find any dirt floor or dirt walls; everything will be built so that you would think you were in any house. One craft for "The Hobbit" would be to create a cutout of a hobbit hole. The front of the structure would be the grassy mound into which the builder constructed the hobbit hole, but the back would be open to show all the rooms and furnishings. You can take creative license with the exact layout of your ideal hobbit hole.
Clay Sculpture
Tolkien's prequel novel is full of fantastical characters that would lend themselves well to a three-dimensional representation in clay. You can create the image of a character straight out of the book, such as Gandolf or Bilbo, as you imagine them. Alternatively, you can create your own character using the book as a guide. For example, make your own wizard along the lines which Tolkien presented them.
Parchment Poem
One of the distinctive features of "The Hobbit," as well as Tolkien's other books, is his inclusion of his poems throughout the book. He often presents these as ancient verse throughout the different stories. If these poems were one of your favorite parts of the book, you can create an old scroll bearing their text. Take a piece of paper and soak it in coffee or tea, singe it with a flame or all of the above. When the paper dries, write out your favorite poem from the book on the paper to have your own literary relic.
Blade
In "The Hobbit," the fine swords which the major characters bore were not simply pieces of sharp metal. Rather, they were almost characters unto themselves with names and histories. If you are more martially minded, you can design your own finely-crafted weapon. Give it a name, a special power (such as Sting's ability to glow when orcs were near), and a history: Who forged it? What other heroes wielded it in its life? When you are done with its design and history, craft it with clay.