What happened to the Dwemers? How could an entire race vanish? And where did they go?

The Dwemer (Dwarves, Deep Elves) have such an rich and mysterious history, perfect for a new storyline.
The game takes place during the Chimer and Dwemer war.
The main character will be the one discovering the Heart of Lorkhan under the Red Mountain, and will be a part of all the bigger events leading to the disappearance of an entire race.
Player will be able to explore the Dwemer cities, not as ruins but as living societies.

New skill:
Engineering – With the Dwemer’s superior engineering skills you will be able to construct mechanical followers like the centurion spider.

This is more of a concept but I’m currently writing the storyline and will update this thread as I’m getting things done.

We already know how the entire race disappeared. They were building their own effigy of a God so that they could use the Heart of Lorkhan to power it and thus transcend the mortal world and become a God themselves. Issue is, things didn't go to plan and instead of transending to become the God in whole their souls were sacrificed to become its skin. That shell of a God become the Numidium which Tiber Septim uses to defeat the Almderi Dominion.

We know what happened, but it would still be pretty cool to see it happen. This actually seems like a pretty good idea, but new Elder Scrolls games are so rare that I'd rather play one where we don't know how the story is going to end. Still, it would be awesome if a Skyrim DLC or something let you go back in time to visit a Dwarven city at its peak.

It would be like the fall of Reach, but you are right about it being better as a bigger DLC

I don't think this belongs in the Fan Fiction forum, in any case. That is, unless you'd like to turn it into a fan fiction or RP. But suggestions for future Elder Scrolls games don't belong here.