Shrink worked in any zones classified as "dungeon", that includes Crushbone, Blackburrow, High Keep, Cazic Thule, City of Mist, Karnor's and probably a few others, even though you could use outdoor spells while in the zone.
The only place I remember where I couldn't shrink myself was vast open spaces like the Karanas. Shrink potion still worked there though, I think.
Not sure it's worth the coding annoyance. /shrug
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