: It's a common place in run of the mill fantasy that elves have some kind of allergic reaction to contact with iron. Tolkien's do not seem to have this limitation, so your suggestion is remotely possible...

: Anyone know if this fantasy motif has any roots in real folklore or mythology?

If I may quote The Encyclopedia of Fairies by Katharine Briggs:

Cold iron repels fairies. A knife, or a cross of iron, are sovereign protection against witchcraft and evil magic of all kinds. A pair of open scissors hung above a child's cradle is said to protect it from being carried off by the fairies. It is a dual protection because it is in the form of a cross, and is also made of steel.

Of course, I don't suggest following the above described procedure, unless you think a bloody baby is a cute one.