Magic circle is Johan Huizinga’s term (1938, Homo Ludens) for the boundary — physical, temporal, and conceptual — that defines where play takes place. Inside the magic circle, special rules apply: a chess piece has power it lacks outside the game; losing a life matters within the session and not at all outside it. Schell uses the concept to ground endogenous-value: game objects and currencies derive their meaning from the magic circle, not from real-world worth (Schell 2008, see source-art-of-game-design).
The magic circle is increasingly contested in game studies — social games, ARGs, and monetisation all blur or deliberately cross the boundary.
Related: game-definition, foundational-vocabulary, endogenous-value, dark-patterns