Q: “How are we to understand Rev. 21:1, which speaks of a ‘new heaven and earth’?”
A: The prophet Isaiah (66:22) and the apostle Peter (II Pet. 3:13) also speak of “new heavens and a new earth.” In these verses the word “heaven(s)” probably refers to “sky” or “firmament,” as in Genesis 1:1. Most Lutherans take the expression “new heaven and new earth” as a figurative description of the Kingdom of Glory—everlasting life in heaven—which Jesus will usher in on the Day of Judgment.
There has been a difference of opinion, however, as to whether this “New Jerusalem” will be created out of nothing (ex nihilo) while this present world is annihilated (II Peter 3:10, 12), or whether God will form this “new heaven and new earth” out of the remains. Luther held to the latter view, due to the inference in Romans 8:21: “The creation itself will be liberated from its bondage to decay and brought into the glorious freedom of the children of God.”
At any rate, there certainly is no room for any millenialistic views of a “heaven on earth,” as has been popularized, for example, by the Jehovah Witnesses.