I’ve been struggling with this subgenre distinction for my current work in progress, When Darkness Falls, which has vampires, djinn and shapeshifter and other paranormal species, set in a medieval desert city in an Arabian Nights type setting. Tricky. This fabulous article by Jeffe Kennedy, written for the Science Fiction & Fantasy Writers of America, helped me to settle this quandry once and for all! Recommended Reads: Fantasy Romance. Jeffe won the RWA Rita Award for Paranormal Romance this year with her book The Pages of the Mind, the first of a 2-book series.
When Darkness Falls is definitely a fantasy romance, and meets every one of the points she makes in her article. Which was a tremendous relief for me, it may sound like a silly thing to get in a fuss over, but I swear the question of whether it was paranormal or fantasy romance was keeping me awake at night!