What is a word for the form of literature that evokes images of supernatural creatures like goblins, elves, hobbits etc. in Tolkienian surroundings of misty mountains, caverns, underground lakes etc.
More specific than "fantasy fiction", Tolkien has been described in The Encyclopedia of Fantasy as the father of high fantasy (also known as epic fantasy), a genre "defined as fantasy fiction set in an alternative, entirely fictional ('secondary') world, rather than the real, or 'primary' world".
As lies breathed through silver, I believe Tolkien would have preferred to label his works as mythopoeia, a term apparently coined by him (and a title of one of his poems). As works that may not necessarily be universally appreciated as high or grand this label is my personal preference too.
creation of myths (OED)
Another grandiose term used by Tolkien himself to refer to his middle-earth works is legendarium.
What booksellers pigeonhole it as is "Science Fiction and Fantasy". If you go into a large bookstore in the US, there will be a section labeled that. If the store has Tolkien, his works will be in that section. In addition, we have a sister StackExchange site named Science Fiction and Fantasy, where most Tolkien-related questions will probably be rated on topic.
Now a lot of readers prefer not to lump the two together like that ("prefer" being perhaps a gigantic understatement)1. You can see a hint of this over at the SF stack, in that they felt compelled to put "Science Fiction" and "Fantasy" in completely different fonts in the stack's own title.
There are oodles of recognized subgenres within each of those two (sub?)genres, of which Tolkien is generally put into High Fantasy within the Fantasy genre. I find this eminently fair, as pretty much any other work that qualifies as High Fantasy will be discussed in part on how it compares to Tolkien (eg: Does it have Tolkienesque races? How does its magic system compare?). If you'd like to know more, I'd suggest looking at some of the tag definitions at SF.SE.