In notes for the Dutch translation of the Lord of the Rings, Tolkien suggests that the structure of the name 'Dwaling' implies that it originated as a settlement of an individual named 'Dwale'. He also implies that 'Dwale' originated as a nickname meaning 'foolish' or 'dull'.
It should be noted that Tolkien presents these ideas as speculations rather than definitive statements, so they may not represent the original inspiration behind the name. 'Dwale' is also an old word for the soporific herb belladonna, so perhaps that plant grew nearby, or the entire name 'Dwaling' might simply be an old form of 'dwelling'.
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