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The smallest genuine pony breed is the Shetland pony, at around 9-10 hands adult height. The true Shetland pony comes from the Shetland Isles, and should not be confused with the American Shetland, an American breed resulting from crossbreeding Shetland ponies and other pony breeds like the Welsh and Connemara. The American Shetland is larger and more versatile, but not as tough or 'cute' as the original. There is also a miniature Shetland pony, created by selectively breeding the smallest available Shetland ponies to each other; there is some debate over whether the miniature Shetland deserves breed status in its own right. Mini Shetlands may have some health problems resulting from inbreeding. All three of these breeds are pony breeds in that they show true pony character in the proportions and around the face.

The smallest horse breeds are the Falabella and the Miniature Horse. Although both of these breeds are far below the usual cutoff height for a horse (14.2 hands) they are always referred to as horses, not ponies, because in appearance and proportion they are miniature horses and do not show pony character. The Falabella breed has significant health problems due to the excessive inbreeding used to create them. The miniature horse is not the same; it is a more recent breed created by crossing miniature breeds such as the Shetland pony and the Falabella with the smallest available thoroughbreds and arabians. The result is a well-proportioned and generally healthy, extremely small animal that is a horse - NOT a pony - in appearance and proportion. Of course, there are still some breeders who select their breeding stock for size first and health second, and this has resulted in the setting of some 'dwarf' genes into certain miniature horse lines. The world record holders for smallest horses and ponies are all minature horses that also carry dwarf genes. Although some mini dwarfs are endearing, most have very serious health problems and deliberately breeding for dwarfism is morally bankrupt.

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