Where It All Goes Down
The Boy's House, Circa 1922
The setting for this story is a little bit tricky. We know that it takes place at the Boy's house and that things are happening around the time the book is published—in 1922—but that's about it.
Margery Williams was born in England, but she wrote the book when she was living with her husband and children in the United States, so the story might be set in either place. Williams grew up in a farming community in rural Pennsylvania. We could totally see the Boy and the Rabbit hanging out by the woods there.
Then again, the Boy heads to the seaside after he recovers from scarlet fever, which is a very British thing to do. Plus, there aren't many "seas" in the good ol' US of A, so maybe the Boy lives in the English countryside.
Either way, the location is pretty magical.
Inside & Out
What we do know is that the story takes place both inside and outside the Boy's house.
Inside the house, the action mainly goes down in the nursery. It's obvious from the story that the Boy's family is fairly well off. They have enough money to hire Nana to take care of the Boy—and his parents rarely have to make themselves seen. The Boy is pretty much swimming in toys. Fancy modern ones, too.
The Rabbit seems to have a lot more anxiety inside of the house. He has to deal with the other stuck up toys…and Nana's clean-up methods.
This is also where the Boy is confined when he gets sick. Sure, there are lots of good cuddle times in bed, but it's clear that the Rabbit really prefers outdoor play.
Outside the house, the Boy and the Rabbit are able to have lots more unsupervised adventures:
Spring came, and they had long days in the garden, for wherever the Boy went the Rabbit went too. He had rides in the wheelbarrow, and picnics on the grass, and lovely fairy huts built for him under the raspberry canes behind the flower border. (19)
There's also woods near the house where the Velveteen Rabbit first encounters the wild rabbits. Yeah, the wild rabbits are a bit salty with him but, overall, the great open outdoors is a whole lot freer for the Rabbit. He gets to leave the confines of the nursery and see more of the world. He's not sitting at the bottom of some toy box. He's out doing things. He's playing games. He's talking to wild rabbits. He's being Real.
Book Epidemic
The Boy's illness is a pretty big moment in the story. It's also historically really important:
And then, one day, the Boy was ill.
His face grew very flushed, and he talked in his sleep, and his little body was so hot that it burned the Rabbit when he held him close. Strange people came and went in the nursery, and a light burned all night and through it all the little Velveteen Rabbit lay there. (52-53)
Scarlet fever was a big, scary deal in the early 20th century. Remember, this was before the discovery of Penicillin: you couldn't just run to the doctor and get some antibiotics to wipe out the nasty bacteria inside you.
Scarlet fever was bad because it mainly affected children under ten years old. Even if you recovered, you might have life long complications. (This is exactly what happened to Beth March from Little Women.)
The doctor's instructions to burn the toys that the Boy had touched were actually in keeping with the thoughts at the time. Scarlet fever was super-contagious and it wasn't worth risking the lives of someone else in the house just to keep a little stuffed bunny…no matter how Real he was.