Fenris Isle is a large island located in the center of Lordamere Lake. The island is generally considered to be a part of Silverpine Forest, and together with the Dawning Isles, form a broken circle of dry land in the lake. This formation was once the rip of an ancient volcano, long since eroded down by the elements.
Fenris Isle was once home to a thriving military outpost of the kingdom of Lordaeron called Fenris Keep, ruled by a promising young lord who frequently traded goods via ferry with the Silverpine mainland. When the undead Scourge took the land, Fenris Isle was abandoned, all of its inhabitants either fled or murdered. The island has since been occupied by the Rot Hide gnolls, who have taken the keep as their base of operations. The Rot Hides are led by their treacherous master, Thule Ravenclaw, who has taken complete control of the island and the nearby Decrepit Ferry.
This section concerns content exclusive to Cataclysm.
In Cataclysm, Fenris Isle has been taken over by Hillsbrad Refugees, possibly some who have fled from Southshore after the Forsaken unleashed the "New Plague" there. They were also driven from their holdings in Hillsbrad, in hopes of escaping defeat at the Forsaken's hands. This is explained in the quest "Rise, Forsaken" given by Sylvanas and the book "The Battle for Hillsbrad" carried by Clerk Horace Whitesteed. The Hillsbrad farmers and residents lost Southshore to the Forsaken warmachines. They attempted to escape north (Silverpine) and east (Arathi Highlands). The ones going east were slaughtered but the ones stepping into enemy territory in Silverpine took refuge in Fenris Isle. The human leader of the Isle, Henry Maleb can be found discussing with Darius Crowley (in Worgen form) on joining forces with the Alliance in the horde questline. Crowley asks Maleb with an ultimatum: join Worgen or be killed by the Forsaken and become Undead.
Fenris Keep and Fenris Isle are likely a reference to Fenrir, the horrific wolf who was the brother of the world serpent and the goddess of hell. Fenrir was bound by the Norse gods on a remote island in a massive lake inaccessible to mortals or giants. He is the eternal foe of Odin the Allfather.