I first came across the term "magic realism" just last year in a series of posts at the award-winning blog AMV (here, here, here, and here). My literary dictionary defines magic realism as "a kind of modern fiction in which fabulous and fantastical events are included in a narrative that otherwise maintains the 'reliable' tone of objective realistic report." Wouldn't you know, I just recently stumbled into magic realism while reading Making the Ghost Dance (Signature, 2006), a short novel by an established Utah author. It's an interesting genre.
The name generally associated with magic realism is Gabriel Marcia Marquez, but the genre has been extended to include authors who draw on fable, folktale, and myth in writing novels with "strong contemporary social relevance." [Note: I haven't read anything by Marquez.] Thus Satanic Verses, for example, is said to fall within this extended definition. [I haven't read anything by Rushdie either.] Science fiction and modern fantasy don't make the club, as they seem to be too concerned with the "magic" and not enough with the "realism." [I've read plenty of SF and fantasy.]
In Ghost Dance, the main character, Peck, dabbles with sleight-of-hand magic while in high school, then later becomes a full-fledged stage magician, performer, and entertainer. But (as narrated in the story) he doesn't just do tricks, he actually makes things disappear: "into the void" as it says in the book, then back again. But (and here's the realism part) the story never dwelt on Peck's seemingly magical power; it was always in the background as he maneuvered his way through the ups and downs of a celebrated if somewhat haphazard life. So I think Ghost Dance is a homegrown example of mainstream magic realism. Anyone have their own encounter to add?