Constructed entirely of wood and standing upon wooden pillars sunk into the lake-bed, the town is south of the Lonely Mountain and east of Mirkwood.

The Lonely Mountain, which could be seen from the town and could be reached by travelling up the Long Lake and then up its northern inflow, the River Running (also called the Celduin).

[T 1] The River Running flowed out of the south of the lake, providing a travel route from Esgaroth all the way downstream to the land of Dorwinion on the Sea of Rhûn.

The Master of the town when Bilbo and Thorin's Company arrived in The Hobbit was portrayed as a capable businessman, but more than a little greedy and cowardly.

The text of The Hobbit states that night had fallen and the Men of the town had gone indoors to eat, while in the drawing, it is still day and swan-headed boats (based, they note, on those in Tolkien's painting The Halls of Manwë for The Silmarillion) are still being rowed about the lake.

Douglas A. Anderson notes in The Annotated Hobbit that Lake-town's Master and councillors possibly derive from Robert Browning's "Mayor and Corporation" in his 1842 poem The Pied Piper of Hamelin.

[9] Esgaroth has been interpreted as Tolkien's criticism of capitalism featuring a ruling elite class that exploits the lower-class citizens.

Although he portrays the highly capitalistical town in a bad light, Tolkien does not advocate a socialist system for the reconstructed Lake-town either.

[10][11] The archaeologist Deborah Sabo, in Mythlore, calls the description of Lake-town as Bilbo arrives there "perhaps Tolkien's most vivid attempt to model a place in Middle-earth on real-world archaeology".

What they remember of the town's glorious past is preserved in songs and tales, but this lore is not considered actual history by the people but rather fiction.

The unexpected arrival of Thorin therefore causes great excitement among the Esgarothians who immerse "themselves in a fantasy that is only tangentially connected to the old prophecies ... and is almost completely detached from the world around them."