This was actually the primary aspect that convinced me that Oz needed it's own system. Just about every ruleset that I was familiar with (which is quite a few, I'll warn you now), had battle magic, such as the obligatory fireball spell. While it's cool to allow wizards to be useful in combat situations, that's not how the Oz stories worked. Magic was very much a plot device.
The first question I faced was whether to use a freeform magic system, with no set spells, or a more structured system. Faced with the plot device magic of the stories, I chose to go with a freeform system, since all the magic users seemed to have the right spell at the right time. Unless they didn't, of course.
Now to give it some structure. One of the first things I knew was that there was no fireballs. While it's certainly possible for a wizard to make an opponent uncomfortable in a number of ways, there are no direct damage effects. That just left me to dig up exactly what kind of effects were appropriate.
"The Wonderful Wizard of Oz" had quite a lot of magic in it. The Silver Shoes which enabled Dorothy to return home at the end. The Magic Cap which allowed the Wicked Witch of the West (and later Dorothy) to command the Winged Monkeys. The Witch's Silver Whistle which summoned wolves, jackdaws, and wasps. The Witch's plot to make an iron bar invisible so that Dorothy would trip over it.
Then there was the Powder of Life and the Wishing Pills from "The Marvelous Land of Oz." The Magic Belt from "Ozma of Oz." Are we detecting a pattern yet?
Most of the early magic was in the form of items with very little spell-casting. It wasn't until much later in the series that spells and such came to the fore. It's a fairly safe bet that the Wizard making a camp out of handkerchiefs in "The Emerald City of Oz" was the first onstage spell-casting in the series.
A case could be made that most of the magical items were used by wicked spell-casters, while good spell-casters were able to pull out whatever spell they needed. This tied neatly into my concept of friends and their relationship to Oz Points. Since wicked characters don't have friends, they don't have pools of Oz Points, and so must resort to other methods. Magic items are reliable, and the exotic ingredients required to make potions and notions help offset the lack of Oz Points.
And then there's the use of cute little poems. Many characters used poems and songs to some degree, but the Wizard used them a few times to use his magic. This led to the Rhyming skill and the means to use it to make magic easier. The Rhyming skill also made sense for a character like Scraps, the Patchwork Girl with all of her silly rhymes.
I still have one hurdle left. I need to figure out how to cancel spells. When Ozma reversed Mrs. Yoops transformations in "The Tin Woodman of Oz", she was unable to completely undo Woot's shapechange. A portion of the plot of "The Magic of Oz" revolved around the Wizard's attempts to free Trot and Cap'n Bill from a magical trap. In "Glinda of Oz", Glinda is completely unsuccessful in using her magic to control the Skeezer island and must resort to figuring out Queen Coo-ee-oh's magic to raise the island.
"The Magic of Oz" also brings up an interesting case. Before he can attempt to free Trot and Cap'n Bill, the Wizard must recover his Magic Bag, which has become lost. This bag also goes missing when Ugu the Shoemaker steals all of the magic in Oz in "The Lost Princess of Oz." Even the potent Yookoohoos may require magical tools of some sort. Mrs. Yoop needed none when she transformed the Tin Woodman, Scarecrow and Woot the Wanderer in "The Tin Woodman of Oz", but Red Reera used a magic powder for her transformations in "Glinda of Oz". That is why both of the magical character templates include the Magical Toolkit trait, but may buy it off.