Freeman spoke to Total Film about having to reject the offer due to commitments to BBC series Sherlock, until director Peter Jackson changed the shooting schedule to accommodate him.
"I had to turn it down because of being contractually obliged to do the second series of Sherlock for the BBC, which we are doing in the middle of this year," said Freeman.
He continued: "When I found out I couldn't do both it was very sad. And then it was very flattering when Peter Jackson rearranged the filming around my availability."
The Hobbit will be divided into two parts. Part 1 is expected to open in cinemas in 2012, with Part 2 opening in 2013.