Making Realistic NPCs

There is one secret to making realistic NPCs: treat them like real people.  That doesn't mean every innkeep, dirt farmer, and bandit thug needs a backstory and daddy issues.  It doesn't mean you need to create motivations and secrets for every character in the village.  Heck, it doesn't even mean every NPC needs a name or a stat block.  It just means that NPCs should feel like real inhabitants of the world, not cardboard cutouts put there to sell magic items, give quests, or fight to the death against the players.

Source

"Stop right there, criminal scum! Nobody breaks the law on my watch!
I'm confiscating your stolen goods. Now pay your fine or it's off to jail."

Let's break it down:

1. NPCs should have motivations beyond the GM's motivations
NPCs exist in the game because the GM has a use for them.  But to avoid being simple cardboard cutouts, they need to transcend that use.  The shopkeeper is there so the PCs can purchase supplies and sell loot, but is he really going to buy the 15 sets of slightly bloody leather armour that they stripped off the dead bandits?  How does he expect to make a profit off of those?  This encourages the players to think more about what they choose to take as loot and where they can reasonably sell it.  It is one of the things that distinguishes D&D from computer games like Morrowind, where you can steal every single pillow in the city and then sell them all to the thieves' guild fence for a tidy profit.

And don't forget magic items.  If healing potions are part of the treasure the GM planned for this encounter, wouldn't the NPCs try to use them rather than just dying so the PCs can have them?

Think of your NPCs as more than just quest-givers, loot-buyers, and sword-swingers.  They need to be a part of a deeper, realistic, lived-in world, not just the user interface the GM uses to interact with the players and drive the plot forward.

2. NPCs need limits

When you think about it, NPC guards are unlikely to pursue the PCs indefinitely for minor infractions.  They are more likely to realize that their lives are not worth a showdown against fully armoured adventurers wielding magical weapons and they aren't paid enough to engage in an epic rooftop chase after a shoplifter.  Your common city guard will likely give up if victory is not assured.

Javert/Razoul

There are exceptions of course.  Largely bread related.  

This goes for all NPCs.  Will the adventuring party's hireling keep following them through the dungeon and carrying their stuff for them once they see the monster they're up against?  Will the group of bandits keep fighting if they start taking heavy casualties?  Remember that fleeing is always an option - the PCs just have to defeat the enemies to get XP, they don't have to kill them.  On the other hand, fanatical cultists are probably more likely to fight to the death, even when defeat seems certain, and an intensely loyal hireling won't care what the PCs are facing, trusting them to keep him safe.

Just take a second and put yourself in the NPC's shoes.  What would they really do in this situation?

3. Feats, skills, and spells should make sense for the NPC, not just for the one time the NPC will face the PCs.
Think about what feats and skills this NPC would realistically have.  Would he really have maxed out his perception, or did you do that just because the party rogue has maxed out her Stealth skill?  Wouldn't the guard with a low Will save want to take Iron Will to help fend off attempts at magical domination, even though the PCs don't have a spellcaster with any such spells?

This is especially common with NPC spellcasters.  Would that wizard really have prepared all the perfect spells to counter the PCs, even though he didn't even know they were coming?  No, he probably has a good mix of powerful offensive spells and useful utility spells.  Just because the GM hasn't planned for the wizard to face the party around any deep pits doesn't mean the wizard won't prepare feather fall.  Are the wizard's 1st-level spell slots filled with magic missile and color spray, or did he also prepare unseen servant because he was expecting a nice relaxing day lounging around in his magic tower?

Remember, the PCs probably aren't specced out specifically to fight this one group of bad guys; the bad guys shouldn't be specced out specifically to fight the PCs either.

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Three simple rules for making NPCs more realistic.  Well, three rules that are really one rule: treat NPCs like people, not props.

-your cardboard cutout d20 despot