Related: Could a Dwarven Civilization Exist?
Background: A Dungeons and Dragons world (for all intents and purposes, Tolkein lore is close enough) in which a group of colonists far from home are building a new city. The Dwarves find a volcano and see it as an opportunity to build a city to rival their homeland. They are currently 25 strong, plus 50 colonists of other races (elves, gnomes & humans), with hundreds more on the way. They have only a handful of mages.
Note that I know that this is realistically a horrible idea and everyone would die on day 1, but this is fantasy, so I'd like to be as believable as possible with my handwaving.
Benefits of this plan:
- Valuable materials. Lots of unobtanium in them hills!
- Natural defenses. No need to build walls, let the mountain keep out attackers.
- Magma smithing. With sufficient protection and Dwarven engineering, lava smiths could invent otherwise impossible crafts!
- It's cool! Seriously, for a group of people obsessed with reputation and legacy, how awesome would it be if you were the first dwarves to live in a volcano? Think of how fearsome everyone would think you are.
Hurdles to Overcome:
- Ridiculous heat. Partially mitigated by dwarven resiliance but still a problem. Is wall shielding a possibility?
- Toxic fumes, especially sulfur. Miners in real life dealt with some nasty gases, can I use the same techniques?
- Lack of food. This is a factor in regular dwarven cities so I can hand-wave "mushrooms and deep dwelling creatures"
- Regular and violent tremors. Is good structural construction enough?
- Lava flows/pools. Would be nasty to break into something like that, though it feels like it would be obvious if you are approaching.
- Eruptions. Kind of a culmination of all of these problems dialed to 11.
What are the possible solutions for the obvious hurdles presented by living in an active volcano? What are the potential benefits? Are there prominent examples from high fantasy media to draw inspiration from?
Edit: Regarding volcano type, it is a shield volcano that is part of a larger, non volcanic mountain chain mostly inspired by the Rockies. It is inland, about 50km from the ocean coast. It is an active volcano, that erupted a few weeks prior to the colonists arriving.