Freeman, who plays the role of young Bilbo Baggins in the movie, was busy shooting for TV series "Sherlock Homes" and could not commit to "The Hobbit".
"We were in trouble. I was really panicking. I was having sleepless nights. We were probably six weeks away from the beginning of the shoot, and we hadn't settled on anyone else, and I was torturing myself by watching 'Sherlock Holmes' on an iPad at 4 o'clock in the morning," Jackson said.
For the director, Freeman was the best choice for the role.
"Martin was the only person that we wanted for that role, and that was really before we met Martin. We knew him from 'The Office' and 'Hitchhiker's Guide To The Galaxy', and we just felt he had qualities that would be perfect for Bilbo," he added.
"The Hobbit: An Unexpected Journey" will hit theatres on December 12.
